§ 2.48 p.m.
§ The Parliamentary Under-Secretary of State Department of Trade and Industry (Lord Lucas of Chilworth)
My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.
§ Moved, That the House do now again resolve itself into Committee.—(Lord Lucas of Chilworth.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [THE EARL OF LISTOWEL in the Chair.]
Lord Williams of Elvel moved Amendment No. 344A:
Before clause 142, insert the following new clause:
§ ("Takeover panel
.The Secretary of State shall appoint a panel to regulate the conduct of takeover offers.").
§ The noble Lord said: We come to a particularly important point in the regulation of financial services—the status of the Takeover Panel. As the Committee will be aware, the Takeover Panel was set up by the Bank of England in 1968. It was set up in response to a certain amount of public disquiet about the conduct of takeover offers. It was at the time headed by the noble and learned Lord, Lord Shawcross; and I think that all Members of this Committee would recognise that over the years the Takeover Panel has performed a significant and valuable function in the conduct of takeover offers. Indeed, it still does.
§ There are, however, three difficulties with the present Takeover Panel in relation to the Bill which is before the Committee. The first is that as time has gone on the panel, and the panel executive working for the panel, has had to codify its rules much more closely. This is perfectly normal procedure. One starts off with a relatively flexible arrangement, and then as one goes on one has to codify the rules, in the form of what is known as the takeover code, so that they are clear. As new practices develop in the market, so those rules change. However, we are now faced with a takeover code together with practice notes which are issued by the panel from time to time and which are in many ways exceedingly complex. Nevertheless, I still hold the view that these notes are necessary.
§ The second difficulty is that with the rise of takeover activity which we have seen in the last year or so, and the new and more aggressive techniques that have been adopted, in particular by hostile bidders, the Takeover Panel has, in the views of many people in the city, become somewhat overwhelmed with the responsibilities laid on it. Indeed, the whole question that was raised about advertising in connection with takeovers was one which led the panel into considerable difficulties. I think that they probably came to the right conclusion, but they had quite a lot of agonising before they came to that conclusion.
§ The third difficulty is that we now have before us a Bill in which a Securities and Investments Board is proposed which is on a much wider canvas than that on which the Takeover Panel operates. The Takeover Panel is restricted, I would remind the Committee, to the conduct of takeover offers, while the Securities and Investments Board (assuming that is the designated agency under the Bill) has a very wide role in investor protection of a very general nature.
§ There is a fourth difficulty, which is the main point of what I shall say. Offer documents which are issued 722 in connection with takeover bids are not subject to the authority of the Stock Exchange at present, and, as I understand it from the Bill, would not be subject to the Securities and Investments Board or the self-regulating organisations that will be set up under its aegis. In other words, we are moving to a system where we have effectively a statutory Securities and Investments Board with derived authority from the Secretary of State and from Parliament. Then we have a voluntary body, which is the Takeover Panel, supervised by the Bank of England, whose decisions carry no status in law but status in influence. It is that difficulty to which this amendment addresses itself. There is no doubt that the Takeover Panel, like the Securities and Investments Board as proposed, is there for the protection of investors. Both have the same objectives. It seems to us an anomaly that whereas protection of investors on certain matters should derive authority from statute, protection of investors on other matters should not have that same authority. The amendment seeks very simply, and in very simple terms, to rectify that anomaly.
§ There has recently been a very glaring example of how the difference between statutory provision and voluntary provision can work in some cases—and in this particular case which I am about to describe—to the detriment of investors. I refer first to the case of the Guinness acquisition of Bell's plc in June 1985, and secondly to the Guinness acquisition of the Distillers Company earlier this year. In connection with this offer the Guinness company issued certain documents. I mean no crusade against the Guinness Company—I have no axe to grind one way or the other—and I mean to make, and I shall make, no speculation on whether or not the statements made in these documents were deliberately misleading. Neverthless, certain assurances were given by the Guinness Company in respect of the offer which were believed at the time shareholders accepted, and were advised by the board of Distillers to accept, the Guinness offer.
For instance, on page 5 of the recommended offer document which was produced by Guinness plc it states quite clearly under a paragraph entitled "Good News for Scotland" that the headquarters of the company would be in Scotland; that the group chief executive's office would be in Scotland; and that the group headquarters would be moved to Edinburgh. It also goes on to say that there would be strong Scottish representation on the board; and in the earlier offer document which was produced before the recommended offer it went on, on page 6 of that document, to specify exactly what that Scottish representation would be. I quote from the document. It said:
Following the merger. Sir Thomas Risk. Governor of the Bank of Scotland, will be appointed non-executive Chairman for the combined group and Mr. John Connell, the Earl of Iveagh and Mr Ernest Saunders will be appointed as Vice-Chairmen"—
and so it goes on. It later went on to say (and 1 quote again):
On implementation of the merger Guinness will change its name
§ None of these assurances has yet been met. There is word going around, reported in the Scottish newspapers, that, through various agencies, there is a search going on for premises in Scotland. The invitation to Sir Thomas Risk to become non-executive chairman of the combined group has 723 disappeared and has apparently been withdrawn in circumstances about which I am unclear. The Scottish representation on the board has not yet been put into effect. Indeed, the board at the moment, with its supposed Scottish representation, consists of one Swiss German, one American, one Frenchman the chief executive, and the noble Earl, Lord Iveagh.
§ There has been considerable public disquiet about these events. The Bank of England, in its capacity as supervisor of the Takeover Panel, had what is described in one newspaper as "a severe interview" with the chief executive of the Guinness Group. As a result of that there is a circular to shareholders which is under preparation which, to my knowledge as of half an hour ago, has not yet been published. The Stock Exchange reserve the right to comment and indeed vet that circular before it goes to shareholders. Shareholders will be invited, as I understand it, under that new circular to approve the arrangements.
§ Again, I am not trying to mount a crusade against the Guinness Company. Nevertheless, I understand from one newspaper that it went as far as the chief executive of Guinness being summoned by the honourable friend of the noble Lord opposite and being told, as I understand it, that the company would be threatened with an investigation if he did not meet the requirements of the Stock Exchange and if he did not meet to the satisfaction of the department the promises that were made in the offer documents. I say very clearly that that was a newspaper report. I have no evidence one way or the other about whether the newspaper was telling the truth. I simply mention it as part of the point that I am making.
§ 3 p.m.
§ The point I am making is this. If the Guinness Company had not put some of these assurances in the listing particulars which went with the offer document, there would have been no status for criticising the promises that were made. It was because they were in the listing particulars that the Stock Exchange had a locus in the matter and were able to say, "Unless you live up to what you have put in the listing particulars we can, if necessary, operate the ultimate sanction, which is delisting of the Guinness securities on the stock market". I am sure that noble Lords will know that that is a kind of nuclear deterrent and not something which the Stock Exchange would drop lightly.
§ I ask this question. What would have happened if that offer or, indeed, any offer had been for cash? If the offer had been for cash, there would have been no listing particulars because no securities would have been issued. The offer document would have made the same promises and given the same undertakings. If those undertakings were unfulfilled then the Stock Exchange would have had no authority to intervene. Indeed, under the Bill before us, the Stock Exchange, as a self-regulating organisation, would equally have no authority to intervene.
It was perhaps rather unwise of Guinness to put all that material in the listing particulars rather than confining it to the offer document, which has no legal status. Nevertheless, they did so. I shall quote from the Guardian of 19th July, which said:
Luckily for the exchange, it will not have to argue the case, because it has now emerged that Guinness repeated the offer document promises in the listing particulars it sent in for the new shares it issued to buy Distillers".
The Guardian goes on to say:
If there had been no new shares issued, and only an offer document, the exchange's formal powers to put pressure on Guinness would have been considerably less, although a lot stronger than those on the panel'".
§ Clearly the Stock Exchange has the ultimate sanction on any company of dropping its nuclear deterrent and delisting the company.
§ This amendment seeks very simply to give the Takeover Panel the authority of the statute which is being discussed at present in the Committee. We are not seeking at all to change the mode of operation of the Takeover Panel; we believe that it does a good job. We are not seeking to change the personnel. It is up to the Secretary of State whether he wants to keep the same personnel. We are seeking very simply to do two things.
§ First, we are seeking to bring the Takeover Panel within the ambit of this Bill so that Clause 167, relating to misleading statements, applies to offer documents as well as to the listing particulars so that a company cannot, simply by making a cash offer, evade the statutory obligation not to make misleading statements. Secondly, we seek to give to the Takeover Panel the full authority of delegation under the statute to make sure that it does not have to rely on, if I may say so, informal interviews with the governor of the Bank of England: it can rely on proper investigation by the Securities and Investments Board delegated from the Secretary of State and from Parliament.
I shall quote again from the Guardian article of 19th July, which says:
Offer documents would have much greater weight if they were policed by a statutory body and had the force of law, but it would mean closing down Old City School".
§ That is the thrust of the amendment. I beg to move.
§ Lord Denning
I should like to say a few words in favour of the amendment. We all remember the trouble in about 1968 when takeovers were rampant and when, just by changing shareholders, you could change the directorate and the running of a company. The workers had no say in the matter at all. The shareholders controlled the companies and changed the directorate and the like. It is very important that there should be a panel to control the operation of takeovers.
As members of the Committee will all know, our dear noble and learned friend Lord Shawcross made a brilliant success of the Takeover Panel. In a way, it is a quasi-judicial body. He exercised almost judicial functions in hearing both sides and ensuring that the takeover was properly regulated and conducted. He did it admirably and so have his successors to the full confidence of the City of London. Let us hope that it will continue.
However, we are now entering a new era in the City of London whereby its affairs are to be regulated in pursuance of statute. That is a very good thing. Schedule 10 deals with all the principles applying to takeovers and sets out what the offer must contain and so forth. However, we shall certainly require the 725 Takeover Panel more than ever if we are to fulfil the whole of that code. Surely in this new situation we need it to be regulated by statute. That is all that the amendment seeks. It says:The Secretary of Stale shall appoint a panel to regulate the conduct of takeover offers".This panel is to operate under the authority of statute, under the authority of the Secretary of State. I wholeheartedly support the amendment.
§ Lord O'Brien of Lothbury
Before I address the Committee on the amendment perhaps I should declare an interest in that I am a member of the international advisory council of Morgan Grenfell. Nevertheless, I have nothing whatever to do with activities in the takeover field of that distinguished merchant bank.
As the noble and learned Lord, Lord Denning, has said, there was a good deal of turmoil in 1968, when I created the Takeover Panel. As the noble and learned Lord also said, the noble and learned Lord, Lord Shawcross, saw to it that it became a highly respected mechanism in the City, and so I believe it has remained even though it is now 13 years since I had any direct connection with it. It is a mechanism whereby the practitioners in the field discipline themselves through a panel which they themselves elect and which, under the guidance of the governor of the Bank of England, performs a very essential function.
It is true that over the years there have been troubles from time to time, but on the whole I think that the Takeover Panel has succeeded as much as any human mechanism of its kind (whether statutory or not) could be expected to succeed. I believe that it will continue to do so. Certainly in the earlier days it was perhaps more frequently the case that not very strong support-ers of the panel were inclined to call it a kangaroo court. That has helped to give rise to the desire to put it on a statutory basis. Indeed, there may be something to be said for that. However, I hope that if it is put on a statutory basis and appointed by the Secretary of State, there will be no question of appointing people from the Boilermakers' Union or the Mothers' Union to serve on the panel. Its great strength is that it is a panel of professionals who understand the business that they are seeking to control. That undoubtedly should continue.
If it were decided that the Secretary of State should in future appoint the panel, I believe that he should appoint it only in consultation with the Governor of the Bank of England, and I think now in consultation with the chairman of the SIB. I would be content to leave things as they are, but if it were decided to bring it within the statutory framework more than it already is in this present Bill, I would seek to secure that modification of the present amendment.
§ Lord Sanderson of Bowden
I look forward to hearing what the Minister has to say in reply to this amendment. I do not even know myself whether the wording of this amendment is the correct wording to deal with the situation that has been described by the noble Lord, Lord Williams, but it is clear to the 726 layman that the activities of the Guinness-Distillers takeover of recent times have caused extreme disquiet.
Whether or not a Class 1 document is a legal document—and we have heard the explanation that it is not—in the eyes of the general public it is an important document. It is put out so that people are then attracted to do a certain thing, or not, as the case may be, and it is then turned over in a matter of months after the bid has been successful.
Surely in the course of this Financial Services Bill it is important that the Government take notice of that particular situation, which does not do anything to enhance wider share ownership or enhance the general good standing of the City of London. It is something to which this Government ought to pay attention. Whether in fact through this amendment or in another way they deal with the matter I know not, but I look forward to hearing what the Minister has to say because something really ought to be done.
§ Lord Grimond
I wholly agree with what has been said by the noble Lord who has just addressed the Committee. Like him, I am not in a position to say whether this is the correct way of dealing with what is undoubtedly a problem, nor whether the wording of this amendment is the correct wording. But I am sure that there is a problem—and a problem which was outlined clearly in relation to the Guinness-Distillers affair by the noble Lord, Lord Williams. 1 do not intend to go over those details again. It is a problem which goes far beyond the City of London, and I do not believe that decisions in these matters can be left exclusively to those who are engaged in finance.
It may be that the problem can to some extent be dealt with through the courts. Again, I do not know about that. There are the company laws; there is the common law and various statutes dealing with false prospectuses, etc. But assuming that it means action outside the courts, there appears to me to be a gap in the present legislation dealing with take-overs.
As I have said before, the workers are intimately concerned about takeovers, but so far as I can see their interests are not explicitly catered for. Furthermore, takeovers can be of great importance to the communities affected. In the case of the takeover of Distillers it was a takeover of the best-known company in Scotland, and it had, or could have, wide social repercussions throughout Scotland. Hence the anxiety of both bidders to assure everybody that they meant to base the operations in Scotland and appoint Scotsmen to senior positions on the board.
Why that became impossible I do not know, but it appears that having made these promises—and no doubt they had some effect upon those who held the shares in Distillers—the Guinness board apparently found it impossible to carry them out. It may be that they discovered, after they had examined the situation at Distillers, that they were impossible to carry out. Whatever the reason, it has caused great anxiety not only in Scotland but I think throughout Great Britain. It does not seem satisfactory that there is no body, so far as I can find out, which is empowered to look into this matter other than the Stock Exchange.
The Monopolies and Mergers Commission I suppose might be involved, but I think on the whole 727 they would say that it is not their business. The Office of Fair Trading were involved before the takeover, but I think now would say that it is not their business either. But it remains of prime importance both to the good name of the financial centres of this country and Scotland.
It may be that there are other ways of dealing with it, but it is undoubtedly a problem that needs to be dealt with. If this is an inappropriate method of dealing with it, as it may well be, the Government should tell us what steps they propose to take to deal with situations such as that which arose when Guinness made all these promises in taking over the Distillers company and then found that they were unable to carry them out.
§ 3.15 p.m.
§ Lord Taylor of Gryfe
I too declare an interest. I am a colleague of the noble Lord, Lord O'Brien, on the International Advisory Council of Morgan Grenfell. Therefore, I shall refrain from any comment in connection with the Guinness takeover. I listened carefully to what the noble Lord, Lord Williams, said and I am not sure that I was convinced by his arguments.
As has been said, the Takeover Panel was set up in order to have a first look at takeovers. It is a totally self-regulating body. The Committee may be interested to know the bodies which are represented on the Takeover Panel. They are the investment trusts; the Institute of British Insurers; the English and Scottish banks; the CBI; the Council of the Stock Exchange: the Institute of Chartered Accountants; The Issuing Houses Association; the National Association of Pension Funds; and the Unit Trusts Association. It is broadly representative of all who would be seriously affected in a takeover situation.
The noble Lord, Lord Williams of Elvel, has produced the topical and interesting case of Guinness, but what we are talking about is changing the structure of an institution which has operated for 20 years obviously quite effectively. The noble Lord, Lord Williams, has not been able to give a record of a disappointing performance of this interesting and authoritative organisation.
The important feature of it, too, is that it is quick. When you are involved in a takeover it is a sensitive situation. It affects people in their work place, it affects the value of stocks and shares, and you have to get quick decisions if at all possible. The present statutory arrangements for takeovers provide that you have the Office of Fair Trading, which has a first look at proposed takeovers, and it may recommend a reference to the Monopolies and Mergers Commission. It takes into account the impact of takeovers on the total economy of the United Kingdom, and not simply the effect on the two companies concerned. It has broader considerations than that. It considers matters of public interest.
However, if the OFT looks at a takeover situation and refers it to the Monopolies and Mergers Commission, you can expect that that takeover will be frozen for six months, and all kinds of things can happen in that six months. You may find a white knight, someone else bidding a higher price, and so on. 728 There are fairly adequate statutory protection provisions in the area of takeovers.
The advantage of this body is that you can get decisions on a first look by the interested parties very quickly. 1 recall only a few months ago that there was a case where again a Scottish company—the Scottish and Newcastle Brewery Company—bid for a brewery company in the north of England. There was some doubt as to the closing time on that bid. The Takeover Panel gave a ruling on the matter. Within 24 hours—
§ Lord Taylor of Gryfe
All I am saying is that the case has not been proved that a statutory body would do it better, or more effectively or more quickly. All I am saying is that once one introduces the statutory element, one may change the character of this body. It calls on the Secretary of State to make appointments to the body rather than the broad representation which presently exists and obviously operates satisfactorily. I am arguing that we have an institution which has operated quickly, effectively and satisfactorily over 20 years. I am not convinced that there is an argument for changing the basis of that organisation.
I agree with the noble Lord who has just spoken. I do not believe in change for the sake of change. The noble Lord, Lord Williams, said much about the Guinness and Distillers affair. Nobody can be happy about that. What the noble Lord did not seem to me to establish was that problems such as those arising in the Guinness affair would be better dealt with if the Takeover Panel was appointed by the Secretary of State rather than as at present. Without establishing this, surely there is no reason to support the amendment.
§ Lord Lucas of Chilworth
I start by thanking the noble Lord, Lord Williams, for the very clear way in which he described, first, his basic thinking behind this amendment, and, secondly, some of the reasons that have brought him to this particular position. It might be helpful to the Committee if I started by describing the background, as the Government see it, to this position.
This amendment would bring the whole question of the regulation of takeovers within the ambit of the Bill. Certain matters to do with takeovers are of course already touched on in the Bill. The noble Lord, Lord Williams, mentioned this during the course of his address to the Committee when he implied (or he implied to me) that offer documents on takeovers would be subject to the SIB. Yes, contrary to what the noble Lord said, the offer documents are subject, particularly in advertising and Part IV of the Bill, for example, to the provisions concerning the issue of securities. I believe the intention is, however, to go much further and to bring in all the matters which are currently dealt with by the Panel on Takeovers and Mergers. The Government have taken a specific decision not to provide statutory backing to the work of the panel, and it may be helpful if I explain why we have reached that conclusion before I turn to the amendment itself.
729 The Government stated in the White Paper on financial services the view that the Panel on Takeovers and Mergers has been,a good example of self-regulation working in an important area of the securities market in the United Kingdom. The Government wish it to continue to do so. If practitioners in. and users of. the securities market felt that statutory backing would be helpful, the Government would be willing to consider it".The noble Lord, Lord Taylor of Gryfe, made this point. There has been no indication to date that this is what is required.
Following the White Paper, representations on this issue were received from various bodies. A degree of statutory backing found favour, as it found favour with the noble and learned Lord, Lord Denning. But many were opposed to it. The panel itself, on which many City organisations are represented, came out against statutory backing, as did the governor of the Bank of England. The noble Lord. Lord O'Brien, in his very helpful intervention, made a point this afternoon, as he did when we touched on this matter a day or two ago, that the strength of the Takeover Panel is its constituent members. He would like to leave things as they are. The noble Lord, Lord Taylor of Gryfe, again referred to the constituent members of that body as being best able to meet the needs. My noble friend Lord Noel-Buxton also suggested in his remarks that giving authority to the Secretary of State would undoubtedly change not only the composition but the character of the Takeover Panel. He did not think that was desirable.
We took due account of all the consultations. We took due account of all the comments that were made to us. We decided against including in the Bill provisions to regulate takeovers. We believed then, and we continue to believe today, that the panel is doing a good job on a non-statutory basis and that it enjoys the support of the City. This decision was announced when the Bill was published in December. I repeat that we have had no reason to change our view between December and now, in late July. Since then, although the Opposition have sought to pursue the point in another place, we have received no representations from those actually concerned with takeovers arguing that the decision should be reversed.
Experience has indicated that the conduct of takeovers is an area which is best left, so far as possible, to self-regulation rather than to statutory provision. The City code on takeovers and mergers and its administration by the panel compares favourably with the more legalistic approach adopted in the USA. There are few in the City or in industry and commerce who would wish to move towards the American model if we can possibly avoid it.
We have looked carefully at the argument that the legislation should nevertheless cater for the fear that the existing voluntary system may break down. There are those who would argue that we should seek reserve powers in the Bill which could be brought into operation if the panel's effectiveness began to be underminded. But reserve powers would carry a very real danger of provoking precisely the decline in the panel's authority which we are keen to avoid. We therefore had to look very carefully at whether the risks of taking reserve powers outweigh the risks of 730 being caught without them in the event of a deterio-ration in the panel's effectiveness and we concluded that the balance of risk was against taking reserve powers.
If would be right if I now turned to the illustration that the noble Lord, Lord Williams, has used in support of his amendment. As a number of other noble Lords have spoken about this matter, I owe it to the Committee to give some explanations or some response to the points that have been raised in the case of Guinness. The noble Lord. Lord Williams, said that there is a difference between statements in listing particulars and other offer documents. But both are covered by the Bill as, indeed, they are covered by the present law.
There are special rules for listing particulars in Part IV of the Bill, and we discussed these last night. But certainly both are covered. So far as concerns the suggestion that we might extend Clause 167 to offer documents, perhaps I may say at this time that Clause 167 is not relevant. It is Clause 44 (which we have already discussed) which applies to offer documents. Noble Lords will recall that Clause 44 deals with the conduct of investment business.
As a number of noble Lords have said, there is widespread concern—and I am aware of that widespread concern—about the extent to which Guinness plc's recent proposals departed from statements of their intention at the time of their offer to Distillers' shareholders. Following discussions with my right honourable friend the Secretary of State for Scotland, the Governor of the Bank of England, and the Stock Exchange, I understand that Guinness now intend to put fresh proposals to their shareholders. I further understand that the panel are looking into whether what has happened has been consistent with the rules or the spirit of the takeover code.
My noble friend Lord Sanderson in his intervention said that he would wait to listen to what I had to say about this matter. If I did not misunderstand him—and he will correct me if I am wrong—he said that he hoped that the Government had taken note of these matters. It is the case that we have taken note. My honourable friend the Minister in another place has seen representatives of Guinness, and I hope that the Committee will accept from me that at this stage I really cannot make any further comment.
The noble Lord, Lord Grimond, expressed his feeling of disturbance. He suggested that Guinness shows that there is a problem. That may be so; but it certainly has not been established that there is a problem which undermines the authority of the Takeover Panel. Only Guinness has been referred to the panel. No decision has yet been taken by any authority at all on this question.
I have gone as far as I think sensible in the interests of our debate this afternoon, in the interests of the parties who are involved in this matter, and I should perhaps finish by saying that we have looked at what is described as a problem and we shall see whether it is a problem or not. But we have also looked most carefully at whether the risks of taking powers, as the noble Lord, Lord Williams, seeks to do by way of his amendment, outweigh the risks of being caught without them in the event of a deterioration in the 731 effectivenes of the panel. We have concluded that the balance of risk was against taking reserve powers. I would invite the Committee to reject the amendment that has been proposed.
§ Lord Williams of Elvel
I am grateful to noble Lords who have taken part in the debate, which has been very interesting. Perhaps I may summarise some of the things that noble Lords have said and make my own comments on them. I was very grateful for the support of the noble and learned Lord, Lord Denning. He put his finger, as always, right on the main problem which is that we have on a wide canvas statutory provisions for controlling securities and yet in this very narrow area we have a voluntary body. This gives rise, in the noble and learned Lord's view and in my view, to a major anomaly. The noble Lord, Lord O'Brien, quite rightly referred, as he has on previous occasions, to the history of the Takeover Panel. I hope that I made it abundantly clear to the Committee that I personally and we on this side had no particular complaints about the job that the Takeover Panel had done over the years. We think that it has done a good job, and we think that it is still doing a good job. But that is not the point that I was trying to make.
I thought that the noble Lord, Lord O'Brien, perhaps offered me a crumb of comfort in saying that if powers were to be taken, he would hope that it would be a panel of professionals and not boilermakers, I think he said, or others. I would certainly agree with that. I think that he himself possibly is now moving a little, if I may say so, towards the possibility that we might have some sort of statutory backing for a Takeover Panel. I say, "boilermakers" deliberately because of an interest which has to be declared. I must declare an interest in that I am a member of the General and Municipal Boilermakers' Allied Trade Unions and, under the formula of the noble Lord, Lord O'Brien, I would be disqualified from serving on the Takeover Panel.
The noble Lord, Lord Sanderson, made an interesting point and raised the general question that I have been trying to put before the Committee as to whether the powers that were at present in the hands of the Takeover Panel and in the hands of the Government, even the powers as proposed in the Bill, were sufficient to deal with the very important matters to which the noble Lord referred.
I was particularly grateful to the noble Lord, Lord Grimond, on this, if I may say so, his happy day, his birthday; and I am sure that your Lordships would wish to congratulate him on that. He raised the important point of the interests of workers and communities in the business of takeovers. Indeed, it is a statutory responsibility under the companies' legislation that directors should have regard to the interests of employees as well as shareholders. I think that he makes that very important point that offer documents ought to reflect.
The noble Lord, Lord Taylor of Gryfe, I am bound to say unusually and uncharacteristically for him, strayed rather off the point. I was not, and deliberately not, referring to competition law. I think that I have a certain experience of competition law. I think that I know from my past activities what are the arrangements for the Office of Fair Trading and the Merger 732 Panel and the Monopolies and Mergers Commission to study these various matters. This has nothing to do with the conduct of takeovers in the market and in the City of London. However, the noble Lord made the point that the panel as at present constituted is a representative body of institutions in the City of London. Some of us might feel that it is perhaps a little too representative of institutions in the City of London; but I shall let that pass for the time being.
Nevertheless, my amendment does not seek—and I emphasised this in moving it—to affect the way that the panel is chosen or appointed. The Secretary of State is within his rights to say that everything is going to go on exactly as before. There is nothing in my amendment which stops that, if that is what he wants to do. The noble Lord, Lord Noel-Buxton, asked me whether there would be any change if what I was proposing actually took place. I must assure the noble Lord that there would be considerable change if the takeover code were backed by the statutory authority derived from the Secretary of State and from Parliament.
I now come to the noble Lord, Lord Lucas of Chilworth, who very kindly spent a considerable time discussing this matter. If I may say so, I think he did it with great clarity. However, I noticed that in what he said he was perhaps somewhat more guarded than he very often is. He talked about the balance of risk and said that the problems had been carefully studied and carefully weighed and that the Government had decided to come down on this side rather than on that side. I am glad that the noble Lord recognised that there are major problems which I am seeking to address in this amendment. He also said that the Takeover Panel had done a good job, and again I agree with him.
He also said that the listing particulars in the Bill would cover all the arrangements which were concerned with the listing of securities, a point which I think I also made in my introduction. I have never been happy about subsection (2) of Clause 44, which was the subsection to which the noble Lord referred me. I think it is extremely difficult, and my legal advisers advise me that it is an extremely difficult clause to interpret. I am not entirely happy that it covers the offer documents that are sent out, but it may do so. I am slightly up in the air on that.
Nevertheless, when coming to the whole question of Guinness, the noble Lord, Lord Lucas, recognised very frankly, I think, that there is a problem, and he explained to the Committee what the Government were proposing to do about that problem. I find his explanation, if I may say so, somewhat less than convincing. The fact that the Takeover Panel is looking into the matter to see whether there may or may not have been a breach in the code and the fact that other people are looking at various parts to see whether certain things, certain undertakings have or have not been breached, I do not find a very convincing response to the Guinness affair. It would be very much easier, in my view, if in these circumstances there was a clear authority from the Secretary of State, through the Securities and Investments Board, to mount an investigation straight away into the operation to see exactly where the responsibility lay. In 733 view of that, I think I must press this amendment and ask the view of the Committee.
§ 3.41 p.m.
§ On Question, Whether the said Amendment (No. 344A) shall be agreed to?
§ Their Lordships divided: Contents, 79; Not-Contents. 161.734
|Alport, L.||Listowel, E.|
|Ampthill, L.||Llewelyn-Davies of Hastoe, B.|
|Ardwick, L.||Lloyd of Hampstead, L.|
|Beaumont of Whitley, L.||Lockwood, B.|
|Beswick, L.||McIntosh of Haringey, L.|
|Birk. B.||Merrivale, L.|
|Blyton. L.||Milford. L.|
|Bottomley, L.||Mishcon, L.|
|Brockway, L.||Molloy, L.|
|Bruce of Donington. L.||Morton of Shuna, L.|
|Burton of Coventry. B.||Nicol, B.|
|Carmichael of Kelvingrove, L.||Northfield, L.|
|Cledwyn of Penrhos, L.||Oram, L.|
|David B. [Teller.]||Paget of Northampton, L.|
|Davies of Penrhys, L.||Parry, L.|
|Dean of Beswick, L.||Phillips, B.|
|Denington, B.||Pitt of Hampstead, L.|
|Denning, L.||Plant, L.|
|Elwyn-Jones, L.||Ponsonby of Shulbrede, L.|
|Fisher of Rednal, B.||Prys-Davies, L.|
|Fitt. L.||Rea. L.|
|Gallacher, L.||Reilly, L.|
|Graham of Edmonton. L.||Rhodes, L.|
|Hacking, L.||Rugby, L.|
|Hampden. V.||Sefton of Garston, L.|
|Hatch of Lusby, L.||Serota, B.|
|Hayter, L.||Shepherd, L.|
|Heycock. L.||Silkin of Dulwich, L.|
|Hirshfield, L.||Stallard, L.|
|Houghton of Sowerby, L.||Stoddart of Swindon. L.|
|Hughes, L.||Strabolgi, L.|
|Ilchester, E.||Taylor of Blackburn, L.|
|Jacques, L.||Taylor of Mansfield, L.|
|Jenkins of Putney. L.||Underhill, L.|
|John-Mackie, L.||Wallace of Coslany, L.|
|Kearton. L.||Wells-Pestell, L.|
|Kiibracken. L.||Williams of Elvel, L.|
|Kinloss, Ly.||Willis, L.|
|Leatherland. L.||Wilson of Rievaulx, L.|
|Aldington. L.||Buckinghamshire, E.|
|Allerton. I.||Butterworth, L.|
|Arran, E.||Buxton of Alsa, L.|
|Auckland, L.||Byron, L.|
|Bauer, L.||Caccia, L.|
|Belhaven and Stenton, L.||Caithness, E.|
|Bellwin, L.||Campbell of Alloway, L.|
|Belolf, L.||Carnegy of Lour, B.|
|Belstead, L.||Carnock, L.|
|Benson, L.||Chorley, L.|
|Bessborough, E.||Colville of Culross, V.|
|Birdwood, L.||Constantine of Stanmore, L.|
|Blake, L.||Cork and Orrery, E.|
|Boardman. L.||Cornwallis, L.|
|Boyd-Carpenter, L.||Cottesloe, L.|
|Brabazon of Tara. L.||Craigton. L.|
|Braye, B.||Crathorne, L.|
|Brightman, L.||Cross, V.|
|Brocket, L.||Cullen of Ashbourne, L.|
|Brougham and Vaux. L.||Davidson, V.|
|Broxbourne, L.||De Freyne. L.|
|Bruce-Gardyne, L.||De La Warr, E.|
|Denham, L.[Teller.]||Mowbray and Stourton, L.|
|Derwent, L.||Moyne, L.|
|Dilhorne, V.||Munster. E.|
|Drumalbyn, L.||Murton of Lindisfarne. L.|
|Dundee, E.||Newall, L.|
|Ebbisham, L.||Noel-Buxton, L.|
|Eden of Winton, L.||Norfolk, D.|
|Effingham, E.||Northesk, E.|
|Ellenborough, L.||Nugent of Guildford, L.|
|Elles, B.||O'Brien of Lothbury, L.|
|Elliot of Harwood, B.||Orkney, E.|
|Elliott of Morpeth, L.||Orr-Ewing, L.|
|Elton. L.||Penrhyn, L.|
|Enniskillen, E.||Peyton of Yeovil, L.|
|Faithfull, B.||Plummer of St Marylebone,|
|Fanshawe of Richmond, L.||L.|
|Ferrers, E.||Quinton, L.|
|Gainford, L.||Radnor, E.|
|Gardner of Parkes, B.||Reigate, L.|
|Glanusk, L.||Renwick, L.|
|Glenarthur, L.||Rodney, L.|
|Gray of Contin, L.||Romney, E.|
|Gridley, L.||St. Davids, V.|
|Grimthorpe, L.||Saint Oswald, L.|
|Hailsham of Saint||Sanderson of Bowden, L.|
|Marylebone, L.||Sandys. L.|
|Hanson, L.||Savile, L.|
|Harmar-Nicholls, L.||Seebohm, L.|
|Henley, L.||Sempill, Ly.|
|Hesketh, L.||Shannon, E.|
|Hives, L.||Sharpies, B.|
|Holderness, L.||Shrewsbury, E.|
|Hooper, B.||Skelmersdale, L.|
|Hunter of Newington, L.||Slim, V.|
|Hylton-Foster, B.||Stanley of Alderley, L.|
|Jessel, L.||Stodart of Leaston, L|
|Killearn, L.||Strathcarron, L.|
|Kimball, L.||Strathcona and Mount Royal,|
|Lane-Fox, B.||Sudeley, L.|
|Lauderdale, E.||Swinfen, L.|
|Layton, L.||Swinton, E. [Teller.]|
|Long, V.||Taylor of Hadfield, L|
|Lucas of Chilworth, L.||Terrington, L.|
|Luke, L.||Thorneycroft, L.|
|McFadzean, L.||Thurlow, L.|
|MacLehose of Beoch, L.||Torphichen, L.|
|Macleod of Borve, B.||Tranmire, L.|
|Malmesbury, E.||Trenchard, V.|
|Mancroft, L.||Trumpington, B.|
|Manton, L.||Tryon, L.|
|Margadale. L.||Tweedsmuir, L.|
|Marshall of Leeds, L.||Ullswater, V.|
|Massereene and Ferrard, V.||Vaux of Harrowden, L|
|Maude of Stratford-upon-||Vickers, B.|
|Avon, L.||Vivian, L.|
|Middleton, L.||Whitelaw, V.|
|Milne, L.||Wynford, L.|
|Milverton, L.||Young, B.|
|Monk Bretton, L.||Zouche of Haryngworth, L.|
On Question, amendment agreed to. Clause 144, as amended, agreed to.
§ Clause 142 agreed to.
§ Schedule 10 [Takeover offers:provisions substituted for sections 428, 429 and 430 of Companies Act 1985]:
§ On Question, Whether Schedule 10 shall stand part of the Bill?
§ 3.50 p.m.
§ Lord Morton of Shuna
At Second Reading, I raised the question of the definition of "takeover" which now appears in Schedule 10, which of course is sections 735 being inserted into the Companies Act. It is described as:In this Part of this Act 'a takeover offer' means an offer to acquire all the shares".That is in distinction to the old Section 428, which applied to a scheme or contract involving the transfer of shares.
At the Second Reading I raised the possible difficulty of the habit in certain circles in Scotland, and perhaps elsewhere, of doing this form of transfer not by an offer and acceptance but by one document called an agreement. No doubt for obvious reasons that did not get an immediate response, but no amendment has been tabled by the Government. Is it intended that such an agreement falls outwith Schedule 10 or within it? If it is within it, are the Government satisfied that it would be caught by the definition?
§ Lord Lucas of Chilworth
I certainly recall the noble Lord, Lord Morton of Shuna, arguing on Second Reading that the scope of the schedule should be extended to cover situations where shares are acquired by private agreement rather than under the terms of a takeover offer. We very carefully considered the point made by the noble Lord, which had also been put to us by no less a body than the Law Society of Scotland. However, I fear it is not one which the Government can accept. Section 428(1) of Schedule 10 ties the application of the provisions to takeover offers. In so doing it follows Section 428 of the Companies Act and all its predecessors.
It has always been a cardinal principle of the provisions that some shares at least must be acquired under the terms of an offer and that only holders of shares to which an offer relates should be able to exercise the right to have their shares acquired by the offeror. Section 428(1) makes it clear that an offeror must offer for all the shares or all those of a class, but otherwise it confirms these ground rules.
We think that it is important to maintain those ground rules, both from the point of view of minority shareholders and from the point of view of the offeror. As regards the minority, unless there is a formal offer they are not in a position to judge the worth of the terms put to them and the 90 per cent, requirement cannot provide a true indication as to whether those terms are fair and reasonable.
So far as the offerors are concerned, tying compulsory acquisition to an offer means that they know where they stand in terms of their potential rights and obligations and can budget accordingly. The noble Lord suggests that there may be scope for abuse if Section 428(1) remains in its present form, but there is no evidence that any such abuse exists at present; nor, on the basis of our wide-ranging consultation with practitioners, is there any demand for an amendment on the lines proposed. What is clear is that changing the ground rules would make the operation of the provisions much more difficult and would create many more problems than it might solve. On that basis, I would urge the Committee to approve the schedule as it now stands.
§ Lord Morton of Shuna
That would be very interesting if it were accurate. Section 428 of the 736 Companies Act 1985, which repeats the Companies Act of the 1940s, says in subsection (1):This section applies where a scheme or contract involving the transfer of shares or any class of shares".The Government have chosen in this Bill to change the wording, and that is what I am querying. They have changed the wording to say:In this part of this Act a takeover offer means an offer to acquire the shares".It is changing from a scheme or contract to a takeover offer. What I was trying to find out from the Government was the reason for the change and whether the change covers what I previously understood was covered.
§ Lord Lucas of Chilworth
I am just a little disappointed that the noble Lord should suggest that I am guilty of an inaccuracy. My advice is well founded, and I believe it to be true, because Section 428 of the Companies Act refers to a scheme or a contract, and not just to offers. It is certainly true that Section 428 goes on to refer to offers; and the scope of the Bill, as I have sought to describe, is precisely the same.
§ Clause 143 agreed to.
§ Clause 144 [Market makers, off-market dealers etc.]:
Lord Hacking moved Amendment 344AA:
Page 112, line 11. leave out ("a price") and insert ("prices")
§ The noble Lord said: The same point I am seeking to cover in my Amendment No. 344AA is covered in my Amendments Nos, 374 and 375A. With the leave of the Committee, I will address your Lordships on all three of my amendments at the same time. I should point out that Amendment No. 344AA refers to clause 144 of the Bill while Amendments Nos. 374 and 375 A relate to Clause 165. All these amendments cover a very simple point, and let me just explain the background to it.
§ Following the bringing into effect of the new Stock Exchange regulations, which I think are due to come into force on 27th October, the separate roles of jobber and broker will no longer exist. There will therefore be a new operator in the market who, roughly speaking, will carry on the merged roles of the present jobber and broker. Therefore it is necessary to define in two Acts, to which I shall draw the Committee's attention, the role of this new operator.
§ This new operator has been called a market maker, and for the purposes of the Company Securities (Insider Dealing) Act 1985 and for the purposes of the Companies Act 1985 this Bill defines the role and the meaning of a market maker. The Bill seeks to include in the two Acts to which I have just made reference further provisions, and those further provisions include the definition of the market maker.
§ The amendment I am seeking to persuade the Government to accept changes the words "a price" to "prices". The reason for that is that in the description given of the role of the market maker reference is made to his willingness to buy and sell securities at a price specified by him. The reality of the market will be that 737 the market maker will be willing to buy and sell securities at different prices. Therefore, in my respectful submission on each occasion when this reference occurs the plural should by used.
§ I hope the Minister will not start quoting the Interpretation Act at me. For reasons which I am perfectly prepared to enlarge upon it is not applicable here. However, I await with interest what the Minister has to say. I beg to move.
§ Lord Brabazon of Tara
The Committee will I think be glad to hear that I am not going to quote the Interpretation Act at the noble Lord, Lord Hacking —not that I am sure that the Committee would not like to hear what he has to say about it. It is far simpler to say to the noble Lord that, while I do not for a moment think that the wording at present in the Bill is unsatisfactory, I always welcome suggestions as to how the wording can be made better. This is one of them. I am pleased to accept the noble Lord's amendment.
§ 4 p.m.
Lord Brabazon of Tara moved Amendment No. 345:
Page 1 12. line 21, after ("exchange") insert (" (other than an overseas investment exchange) ").
§ The noble Lord said: This amendment was spoken to with Amendment No. 111. I beg to move.
§ Clauses 145 to 147 agreed to.
§ Lord Silkin of Dulwich moved Amendment No. 345ZA:-
After Clause 147, insert the following new clause:
§ . Any person aggrieved by any requirement of an Inspector under section 147 above or by a report to the Secretary of State made by virtue of that section may apply to the court on the ground that anything done by or on the authority of the inspector was in breach of the rules of natural justice and upon such application the court may direct that such requirement or report shall be treated as having no effect and may make such other order as appears to be just and equitable.").
§ The noble and learned Lord said: We are now dealing with the process of investigation into insider dealings covered in particular by Clauses 147 and 148—clauses which follow the pattern of clauses in the Companies Act with regard to other circumstances which are dealt with in that Act. This amendment seeks to introduce into the procedure a requirement that it should be carried out in accordance with the rules of natural justice.
§ It may be said that such a requirement ought to form part of all the equivalent sections in the Companies Act and elsewhere; and if that were said, I should entirely agree with it. But this is the opportunity for dealing with the point in relation to this aspect of trading. I hope that if the proposal made by the amendment is successful, either in the form in which it has been made or in some other form, the equivalent clauses will be incorporated into other legislation.738
Clause 147 gives enormous powers to inspectors appointed by the Secretary of State. It is desirable to look at the details of the clause to see how it operates. In the first place, the Secretary of State's power to appoint one or more competent inspectors to carry out investigations arises where there are circumstances suggesting that there may have been a contravention of the Company Securities (Insider Dealing) Act. That is the first point—circumstances suggesting that there may have been a contravention. Subsection (3) deals with the powers of the inspectors. It says:
If the inspectors consider that any person is or may he able to give information concerning any such contravention".
Once again we have a very flimsy set of circumstances upon which the powers may be operated. In those circumstances the inspectors may require the person concerned to produce documents in his possession, to attend before them and otherwise to give them all assistance in connection with the investigation. It is his duty to comply. Among other things, under subsection (4) the inspector,
may examine on oath any person who he considers is or may be able to give information"—
again we have the "may"—
concerning any such contravention".
§ Incidentally, perhaps the Minister will look at the clause on a pure point of semantics. The plural and the singular seem to be mixed up—but that is not the point I am making on this amendment.
The very important subsection (6) provides that:
A statement made by a person in compliance with a requirement imposed by virtue of this section may be used in evidence against him".
§ So given that it is thought that there may be a contravention and the inspectors think that somebody may be able to give information about that possible contravention, that person can be required to produce documents and to give evidence on oath, and any statement that he makes can be used in legal proceedings against him. That is a most unusual provision and is, I think, virtually unique to the Companies Act.
§ Under Clause 148 there are provisions which apply if such a person fails to comply with the inspectors' requests. If he does so fail to comply, they can certify that fact to the court. If the court is satisfied that he did so without reasonable excuse, the court can punish him, in effect, for contempt of court; and in addition to that penalty the court can direct the Secretary of State that he may exercise the powers of cancelling an authorisation under the Act and in other ways penalise him and his business. These are draconian powers. I would not for one moment suggest that in dealing with insider trading there should not be severe powers indeed. What I do suggest is that those powers should be exercised in accordance with the ordinary rules of natural justice which indeed the courts enforce in relation to a very wide range of judicial or quasi-judicial proceedings in other fields.
§ The question of whether the rules of natural justice apply in relation to investigations under the Companies Act has been the subject of litigation in the past—litigation with which I have had some small concern. My understanding of the position—and the Minister will correct me if that understanding is 739 wrong—is that although there is nothing in the legislation which requires that the rules of natural justice should be adhered to, nonetheless inspectors are given guidance by the department, the effect of that guidance being that they are asked to comply with the rules of natural justice.
§ If that is right, my submission to the Committee is that there is no reason why that should not be incorporated in the statutory provisions. Indeed, there is every reason why it should be incorporated, because it is only if it is so incorporated that the courts will be able to take cognisance of the rule. It is quite unfair and, I suggest, out of accord with the rules of national justice, that the inspectors should be told, "This is how you should operate", but that there should be no statutory sanction if they fail to operate in that way.
§ As I said at the outset, I appreciate that this amendment possibly has wide-ranging repercussions for the whole field of investigation by inspectors, and I do not shrink from that suggestion. Indeed, it is an advantage that that should be so, because we are here dealing with a basic principle that ought to apply generally. In other situations one comes across circumstances in which the statutory provision leaves out some procedure or principle that is regarded as being important. It is the stage at which one discovers that statutory omission that one should, when the opportunity arises, put it right. This is one of those occasions and I hope very much that the Committee will support the view that it ought to be put right now. I regret that the Benches opposite are somewhat denuded; possibly natural justice is being done elsewhere on this occasion. Despite that, I hope very much that the Minister will accept the principle that I have put forward. I beg to move.
§ 4.15 p.m.
§ Lord Lucas of Chilworth
I am so grateful to the noble and learned Lord, Lord Silkin, for the way in which he has described the amendment. That has been very helpful to me, since the amendment was put down only yesterday. Considering that we did not finish our business until half-past twelve this morning, I have had very little time to give due consideration to the matter. I understand the noble Lord's concern, but his amendment appears to presuppose a procedure somewhat akin to that followed under the Companies Act, where the inspector's job is to unravel and explain for publication what is often a very complicated story.
Where Clause 147 is concerned, the inspector's task will be to establish facts of a straightforward kind and not to pass judgment. His report will not be published. To the extent that it contains elements of judgment they will never see the light of day; nor will they be tested in court in the normal manner. It is true that an inspector's powers under Clause 147 are the same as those of an inspector appointed under Section 432 of the Companies Act. That is because a large part of the problem is obtaining evidence. The Section 432 powers have proved effective in eliciting evidence.
However, it does not follow that every safeguard attaching to the existing power should be imported. Although the powers are the same, I stress the point that the circumstances in which they are exercised are very different. The job of Section 432 inspectors is 740 effectively to write the official history of what are usually episodes of considerable complexity. The witnesses who inspectors hear will often give sharply conflicting evidence. Reports will frequently criticise the conduct of individuals, not just expressly but implicitly, by preferring some witnesses' accounts to those of others. It is right and proper that special protection should be available to such individuals.
The circumstances of a Clause 147 investigation will be quite different. The inspector will start from a list of stock market transactions. His job will not be to explain them but, first, to discover as far as he can the individuals behind any that are anonymous, and, secondly, to form a view as to whether any of the people involved should be proceeded against. His findings will be known only to the Secretary of State. They will become public only in the event of action being taken. If action is taken, those against whom it is taken will have the normal opportunities to defend themselves.
I find it slightly surprising that the noble and learned Lord, Lord Silkin, should have put down this amendment and advanced the argument that he has, because the Official Opposition must decide whether or not they are against insider dealing. In another place the noble and learned Lord's honourable friend Mr. Gould was all in favour of the powers that the noble and learned Lord, Lord Silkin, is criticising. The Labour Opposition proposed the present power as an amendment to the Companies Act 1980, and so to my way of thinking the noble and learned Lord's argument does not lie too easily.
I urge the Committee to reject the amendment, but I wish to stress that in so doing the Committee would not be absolving inspectors from observing the requirements of natural justice—certainly to the extent that they are applicable to the job that the inspectors have in hand. The inspectors must observe the requirements, and they will do so without express provision to be answerable to the courts if they do not. However, I emphasise that inspectors should not, in that important task, be impeded by special requirements developed for a very different type of investigation. With that explanation I hope that the noble and learned Lord will see fit to withdraw his amendment.
§ Lord Silkin of Dulwich
I begin by apologising to the Minister for the short notice of this amendment. He will understand that it is not only the Government who have been put under great pressure by this legislation. It is not easy to absorb a very large number of amendments and new clauses emanating from the Government and at the same time to give careful scrutiny to the existing clauses in the Bill, so as to bring forward amendments in good time.
This is a very important amendment that raises an important principle. With great respect to the Minister, I thought it a little unworthy of him to suggest that because my honourable friend Mr. Gould is of the view, as I am, that there should be very stringent rules to give protection from the evil of insider dealing, either Mr.Gould or myself would wish those rules to be otherwise than conducted in accordance with the rules of natural justice to which the procedure would be subject in any event, as the 741 Minister himself said in the latter part of his remarks.
The difference between the Minister and myself, therefore, is that he accepts that those rules should apply—and it is right that they should apply—but suggests that it is wrong that they should form part of the statutory provision, the details of which are set out in the statute. Therefore, those details would contain, in practice, everything in the way of powers enabling the inspectors to hold their inquiry but nothing by way of protection for the people who are required to give evidence or to produce documents. That, in my view, is quite wrong.
It makes no difference at all that in the case of Clause 147 inquiries there may not be a public report, even though there appears to be nothing in the clause which prevents the report from being made public; but I accept that that in practice, may be the position. If anything, it assists the case I am making. If those who may be criticised in the interim or final report do not even know that they are being criticised, the case for them being dealt with prior to that criticism being formulated, in accordance with the rules of fairness, is that much stronger and certainly not weaker.
The fact is that once reports which may criticise individuals are in the hands of the Secretary of State, how the Secretary of State thereafter will deal with those individuals or with the organisation of which they are part is a matter within his own breast, and there is certainly no guarantee that in his dealings with them in relation to authorisation or otherwise he may not take into account the criticisms that have been made in reports which they have not had the opportunity of seeing.
It is not only the report which should be subject to the rules of natural justice, but the whole procedure of the inquiry; it is the opportunity to know what are the criticisms made about a person and it is the opportunity, at the end of the day and before the inspector finally makes up his mind, to know the sort of criticisms which the inspector is minded to make about a person. Again, my understanding is that the guidance given goes into those matters in detail. If it does, there is every reason why a person who is being questioned or required to produce material under Clause 147 should not only know that there is such guidance, but should be protected when he is answering the questions—or perhaps refusing to answer the questions, as he is entitled to do—and should be in a position to know that he is protected. The only way in which he can know that he is protected is if the principle is enshrined in the statute itself.
I am not satisfied with the reply that the Minister has given. I accept and I apologise for the fact that he has not had a great deal of time, and I would have hoped for a better reply had he more time, but in the circumstances—
Viscount Colville of Culross
Before the noble and learned Lord makes up his mind on this I wonder whether he will allow me to intervene? I have been following, professionally, the development of administrative law over a fairly long period. What the noble and learned Lord is now suggesting is entirely within the demesne of the rules of judicial review which are applying to an increasingly large number of 742 investigations and various other mechanisms which have arisen under statute law and others which have arisen out of domestic proceedings, as far as that goes.
I am extremely worried about this amendment. I am in charge of what is, I believe, technically a quango. It has various statutory duties to investigate complaints about a number of things, in a totally different field, though that makes no difference for the purposes of this debate. We are very well aware—and I have a large body of commissioners who work in this quango—that all these investigations, because they put people in peril in exactly the way that the noble and learned Lord has remarked upon, have to be conducted in accordance with the rules of natural justice. I have personally instructed people who are going to carry out investigations that they have to abide by the rules and I have explained what those rules are.
I am very concerned that if the noble and learned Lord is trying to insert a specific requirement in this Bill on account of the rules that he well knows, in a Latin phrase, there may be some doubt plated upon the activities of other people under statutes, albeit quite recent, which say nothing about this. The noble and learned Lord must realise that the whole process of judicial review does not depend upon the existence of a statutory remedy of the sort that he is seeking to insert in the Bill.
The noble and learned Lord is absolutely right. Of course these provisions have to be subject to natural justice, but it does not require a statute to say so, because it is inherent in the major statute which provides for judicial review and in the Rules of Court, particularly Order 53, that this shall be inherent in every single activity of this sort that goes on. If the noble and learned Lord insists on putting this into the Bill, he will undermine all sorts of other regimes and methods of investigation which are subject to these rules at the moment, and rightly so, but about whose activities there may be some doubt hereafter.
§ Lord Silkin of Dulwich
I am grateful to the noble Viscount for making that point which I do not suggest is an invalid one, but the fact is that investigations under the provisions of the Companies Act are a very different type of investigation from the majority of other investigations of this kind. They produce an entirely different result. What happens is that at the end of the day there is a report to a Minister. The Minister may, or may not, act upon it. That report may, or may not, be published. However, enormous harm can be done to people if reports containing a great deal of criticism are published.
In litigation some years ago on one such case the court, as I understood it, took the view that there was nothing that could be done to upset a report because a report is a report. It is not a document which has any direct effect. Indeed, it is on that basis that I believe in one case an interlocutory injunction was refused. That may, or may not, be on all fours with the sort of case to which the noble Viscount refers. I suspect that he is referring to bodies which have specific powers and which having conducted or organised the conduct of an investigation then operate their powers. In such cases I wholly agree with the noble Viscount. It may be quite unnecessary, because of the rules of judicial review, to incorporate specific provisions in the 743 statute. The very fact that they have certain powers implicit from that is the requirement that the rules of natural justice shall be followed.
This is a totally different situation. Under the Companies Act generally the procedure whereby people are given specific powers—very unusual powers, moreover—to conduct investigations and compel evidence, and then simply to make a report is, as far as I know, a unique situation. The noble Lord may know of others. If there are others, then the point applies equally to them, but certainly it is the example most within my own knowledge. It is for that reason that in my view there should be a specific provision in the section concerned which makes it quite clear—contrary to the doubts that may have existed in the past—that the requirement of natural justice is not merely something which the department considers fair to bring in but is something which Parliament has decided is necessary.
§ 4.30 p.m.
§ Lord Lloyd of Kilgerran
Before the noble and learned Lord sits down, may I say that I have been trying to follow his answer to the noble Viscount, Lord Colville, as to why it is necessary in the context of this Bill to have a specific reference:that anything done by or on the authority of the inspector was in breach of the rules of natural justice.As the noble and learned Lord may know, my expertise in these matters derives only from spending the whole of my adult life in the field of intellectual property. There are tribunals in that field, but one has been able to get at the tribunals, if that is the correct phrase, on the grounds that they have not behaved in accordance with the principles of natural justice.
As the Committee will know, the field of intellectual property is a very specialised field in which it has never been thought necessary—because patents and trade marks are so specialised and there are tribunals existing to deal with them: the Patent Office and so on—to state in an Act that there are principles of natural justice and that this must be put into the Act so that there should be a statutory reference.
The noble and learned Lord, Lord Silkin, has said that the situation mentioned by the noble Viscount, Lord Colville, is totally different. Of course it relates to company law but it is totally different from the position under this Bill. It is a situation that I cannot understand from the very persuasive arguments that the noble and learned Lord has put forward in support of his case. That may be my fault. Why is it necessary in this Bill to have a specific clause stating that the rules of natural justice will apply?
§ Lord Lucas of Chilworth
I rather suspect that the noble and learned Lord, Lord Silkin, may wish to respond a little further, but I wonder whether at this moment he will allow me to answer a couple of the points which he raised. If a person declines to co-operate with an inspector, there is an element of protection for the person who has a reasonable excuse 744 for declining to co-operate with an inspector under Clause 148, which involves the courts. Additionally, under Clause 149(3)(g) the information can only be published in accordance with the Act. That of course is for purposes where there is adequate protection.
I am not sure whether I misled the noble and learned Lord, Lord Silkin, in my earlier remarks when I was discussing the inspector's task. I suspect that I probably did not, but in the event that I did may I just make sure that my meaning was clear? In regard to Clause 147 I was discussing the inspector's task, which would be to establish facts of a quite straightforward kind and not to pass judgments. I said that his report would not be published, but I correct myself in the remarks I have just made with regard to Clause 149. Normally, it would not be published—certainly to the extent that it contains elements of judgment, which would never see the light of day. I am fairly sure that I then said, "nor will they be tested in court in the normal manner". I should have said that whether or not there are elements of judgment, either this will never see the light of day or they will be tested in the normal manner. I may inadvertently have misled the Committee, and of course I apologise if I did.
I must say that in this regard we do not lightly seek the powers in the Bill. Experience shows that they are needed to enforce the legislation against insider dealing. I regret it, but it is what experience has suggested. It certainly represents an intrusion, but I expect that most people in fact will put up with it in the interest of preventing false markets, which is really what we are talking about.
I am sorry that the noble and learned Lord, Lord Silkin, has not found my answer satisfactory. I have to tell him that I am encouraged in my answer by my noble friend Lord Colville; and indeed the intervention of the noble Lord, Lord Lloyd of Kilgerran, suggests that what I was saying was reasonably fair. It addresses accurately the balance that we wish to strike. If I can advance any other argument I shall of course be happy to do so, but at the end of the day I believe that we have this matter right. As I suggested earlier, I think that the Committee should reject the noble Lord's amendment.
§ Lord Silkin of Dulwich
I do not intend to take up any more of the time of the Committee because I think that the issues are very clear. We are dealing here with a special procedure, which ends in a report which may never be seen by the person criticised. That is the vital difference between this and many other cases where there is no specific provision. In those circumstances, it seems to me to be right to test the feeling of the Committee and I shall do so.
§ 4.37 p.m.
§ On Question, Whether the said amendment (No. 345ZA) shall be agreed to?
§ Their Lordships divided: Contents, 65; Not-Contents, 206.746
|Ardwick, L.||Boston of Faversham, L.|
|Beaumont of Whitley, L.||Bottomley, L.|
|Beswick, L.||Brockway, L.|
|Blyton, L.||Bruce of Donington, L.|
|Caradon, L.||Lovell-Davis, L.|
|Carmichael of Kelvingrove, L.||McIntosh of Haringey. L.|
|Cledwyn of Penrhos, L.||Mishcon, L.|
|David B. [Teller.]||Molloy, L.|
|Davies of Penrhys, L.||Morton of Shuna, L.|
|Dean of Beswick, L.||Nicol, B.|
|Denington, B.||Oram, L.|
|Elwyn-Jones, L.||Paget of Northampton, L.|
|Ennals, L.||Parry, L.|
|Ewart-Biggs. B.||Phillips. B.|
|Fisher of Rednal, B.||Pitt of Hampstead, L.|
|Fitt, L.||Ponsonby of Shulbrede, L.|
|Graham of Edmonton, L.||Prys-Davies, L.|
|Hatch of Lusby, L.||Sefton of Garston, L.|
|Heycock, L.||Serota, B.|
|Hirshfield, L.||Shepherd, L.|
|Houghton of Sowerby, L.||Silkin of Dulwich, L.|
|Hughes, L.||Stallard, L.|
|Jacques, L.||Stoddart of Swindon, L.|
|Jeger, B.||Strabolgi, L.|
|Jenkins of Putney, L.||Taylor of Mansfield, L.|
|Kagan, L.||Underhill, L.|
|Kilbracken, L.||Wallace of Coslany, L.|
|Leatherland, L.||Wells-Pestell, L.|
|Listowel, E.||White, B.|
|Llewelyn-Davies of Hastoe, B.||Williams of Elvel, L.|
|Lockwood, B.||Willis, L.|
|Longford, E.||Wilson of Rievaulx, L.|
|Abinger, L.||De La Warr, E.|
|Addington. L.||Denham, L. [Teller.]|
|Airedale, L||Denning, L.|
|Aldenham, L.||Derwent, L.|
|Aldington, L.||Diamond, L.|
|Allerton, L.||Dilhorne, V.|
|Ampthill, L.||Donaldson of Kingsbridge. L.|
|Arran, E.||Drumalbyn. L.|
|Bauer, L.||Dundee. E.|
|Belhaven and Stenton, L.||Eden of Winton. L.|
|Bcllwin, L.||Ellenborough, L.|
|Beloff, L.||Elles. B.|
|Belstead, L.||Elliot of Harwood, B.|
|Benson. L.||Elliott of Morpeth, L.|
|Bessborough, E.||Elton, L.|
|Birdwood, L.||Enniskillen, E.|
|Blake, L.||Ezra, L.|
|Boardman, L.||Faithfull, B.|
|Boyd-Carpenter, L.||Ferrers, E.|
|Brabazon of Tara, L.||Ferrier, L.|
|Braye. B.||Gainford, L.|
|Brentford, V.||Gardner of Parkes. B.|
|Bridgeman. L.||Gladwyn, L.|
|Brightman. L.||Glanusk, L.|
|Brocket, L.||Glenarthur, L.|
|Brookeborough, V.||Gray of Contin, L.|
|Brougham and Vaux, L.||Grey, E.|
|Broxbourne, L.||Gridley, L.|
|Bruce-Gardyne, L.||Grimond, L.|
|Buckinghamshire, E.||Grimthorpe. L.|
|Butterworth, L.||Hailsham of Saint|
|Buxton of Alsa, L.||Marylebone, L.|
|Caccia. L.||Hampden. V.|
|Caithness, E.||Hanson. L.|
|Campbell of Alloway, L.||Hanworth, V.|
|Campbell of Croy, L.||Harmar-Nicholls, L.|
|Carnegy of Lour, B.||Harris of Greenwich, L.|
|Carnock, L.||Harvington, L.|
|Chorley, L.||Hayter. L.|
|Colville of Culross, V.||Henley. L.|
|Constantine of Stanmore. L.||Hesketh, L.|
|Cork and Orrery, E.||Hives, L.|
|Cottesloe, L.||Holderness, L.|
|Craigton, L.||Hooper, B.|
|Crathorne. L.||Hooson. L.|
|Cross, V.||Hunter of Newington. L.|
|Cullen of Ashbourne, L.||Hylton-Foster, B.|
|Davidson, V.||llchester, E.|
|De Freyne. L.||Keilh of Castleacre, L.|
|Kilmarnock. L.||Roberthall, L.|
|Kimball L||Robson of Kiddington, B.|
|Kitchener, E.||Rochester, L.|
|Lane-Fox, B.||Rodney, L.|
|Lauderdale, E.||Romney, E.|
|Layton, L.||Rugby. L.|
|Limerick, E.||St. Davids, V.|
|Lloyd of Kilgerran, L||.Saint Oswald, L.|
|Lucas of Chilworth, L.||Sanderson of Bowden, L.|
|Luke, L.||Sandys, L.|
|McFadzean, L.||Savile. L.|
|Mackie of Benshie, L.||Seear, B.|
|McNair. L.||Seebohm. L.|
|Mais, L.||Sempill, Ly.|
|Malmesbury, E.||Shannon, E.|
|Mancroft, L.||Sharples, B.|
|Margadale. L.||Simon of Glaisdale. L.|
|Marshall of Leeds. L.||Skelmersdale, L.|
|Massereene and Ferrard, V.||Slim, V.|
|Maude of Stratford-upon-||Somers. L.|
|Avon, L.||Stanley of Alderley L.|
|Merrivale, L.||Stedman B.|
|Middleton L||Stodart of Leaston. L.|
|Milne, L.||Strathcarron, L.|
|Milverton, L.||Strathclyde, L.|
|Monk Bretton, L.||Strathcona and Mount Royal.|
|Mowbray and Stourton. L.||Sudeley. L.|
|Moyne L||Swinton. E. [Teller.]|
|Munster, E||Taylor of Gryfe, L.|
|Murton of Lindisfarne, L.||Taylor of Hadfield. L.|
|Newall L.||Terrington. L.|
|Noel-Buxton L||Thomas of Swynnerton. L.|
|Norfolk. D.||Thorneycroft, L.|
|Norrie, L.||Tordofl. L.|
|Northesk. E.||Torphichen, L.|
|Nugent of Guildford, L.||Tranmire. L.|
|O'Brien of Loth bury, L.||Trenchard. V.|
|Ogmore. L||Trumpington. B.|
|Onslow, E.||Tweedsmuir, L.|
|Orkney. E.||Ullswater, V.|
|Orr-Ewine, L||Vaux of Harrowden, L.|
|Penrhyn. L.||Vickers, B.|
|Peyton of Yeovil, L.||Vivian, L.|
|Platt of Writtle, B.||Walston, L.|
|Plummer of St Marylebone.||Westbury. L.|
|Quinton, L.||Whitelaw, V.|
|Radnor. E.||Wigoder, L.|
|Rankeillour, L.||Winstanley, L.|
|Reigate, L.||Wise, L.|
|Rennell, L.||Wynford, L.|
|Renwick, L.||Young, B.|
|Ritchie of Dundee, L.||Zouche of Harynguorth, L.|
On Question, amendments agreed to.
§ 4.47 p.m.
§ Clause 148 [Penalties for failure to co-operate with s. 147 investigations]:
§ Lord Lucas of Chilworth moved Amendment No 345A:
Page 115, line 13, leave out ("that") and insert ("a specified").
§ The noble Lord said: It may be for the convenience of the Committee if I speak also to Amendments Nos. 345B and 345C. I assure the Committee that the amendments are essentially drafting amendments. 1 beg to move.747
§ Lord Lucas of Chilworth moved Amendment No. 345B:
Page 115, line 15, leave out ("that") and insert ("a specified").
Lord Lucas of Chilworth moved Amendment No. 345C:
Page 115, line 26, leave out from beginning to ("and") in line 30 and insert—
("(4) The period mentioned in paragraphs (a) and (c) of subsection (3) above shall be such period as appears to the Secretary of State reasonable to enable the person on whom the notice is served to complete the performance of any contracts entered into before the notice comes into force").
Lord Brabazon of Tara moved Amendment No. 346:
Page 115. line 40, after ("or") insert ("certification by a ").
§ The noble Lord said: Amendments Nos. 346, 347 and 348 were spoken to with Amendment No. 79. I beg to move.
Lord Brabazon of Tara moved Amendment No. 347:
Page 116, line 20, after ("or") insert ("certification by a").
Lord Brabazon of Tara moved Amendment No. 348:
Page 116, line 29, after first ("or") insert ("certification by a").
§ Clause 148, as amended, agreed to.
§ Clause 149 agreed to.
§ Clause 150 [Exceptions from restrictions on disclosure]:
§ Lord Brabazon of Tara moved Amendment No. 349:
Page 119, line 29, at end insert—
("(oo) for the purpose of enabling or assisting an auditor of an authorised person or a person approved under section (Power to require second audit) above to discharge his functions;").
§ The noble Lord said: This amendment was spoken to with Amendment No. 239. I beg to move.
§ Lord Lucas of Chilworth moved Amendment No. 350:
Page 120. line 29. leave out ("to")
§ The noble Lord said: If the Committee allows, I shall speak also to Amendments Nos. 351, 352, 353, 404. 406, 407 and 409.
§ The amendments are concerned primarily with the existing restrictions on disclosure of Banking Act information. In another place the Government announced their intention to widen the scope for disclosure. The development of financial conglomerates supervised under two or more statutory regimes makes it all the more important that financial and company regulators should be able to share informa- 748 tion. The Government's aim is to facilitate this for both domestic and overseas regulators while at the same time maintaining appropriate protection against undesirable disclosure. The Bill already provides for this in relation to information obtained under the Bill or under companies and insurance legislation. These amendments provide the banking piece of that jigsaw, if I may so call it. I beg to move.
§ Lord Williams of Elvel
As the noble Lord says, these are quite important amendments. They extend the ability to exchange information particularly, as the noble Lord said, in the banking sector. Amendment No. 351 sets out a table of persons and functions in great detail. This is something which we, on our side, have to consider. A rather delicate line has to be drawn between the responsibility of the auditor to his client and the responsibility of the auditor across a group in the new world that we are entering. I am not intending to oppose the amendments. I wish to look at them carefully and, if we have any problems, to come back on Report.
§ Clause 150, as amended, agreed to.
§ Lord Lucas of Chilworth moved Amendment No. 350A:
After Clause 150, insert the following new clause:
§ ("Directions restricting disclosure of information overseas.
§ The noble Lord said: The Bill, as I have suggested, provides wide powers to obtain information and requires recognised self-regulating and other organisations to monitor their members. The Bill makes specific provision for restricted information to be disclosed to assist overseas regulators of financial services. These provisions demonstrate, I believe, the Government's commitment to effective domestic regulation and to promoting international co-operation between financial regulators.
§ It is also important that sensitive information should be properly safeguarded. It should normally be used only for purposes broadly connected with the purposes for which it was obtained. That is why the new clause would give the Secretary of State a power to prevent disclosure overseas where it appears to him to be in the public interest to do so. In some cases it may be sufficient to ensure that disclosure overseas is subject to specified conditions. The clause provides for this. The conditions might, for example, be that there should be adequate arrangements to safeguard the information when it reached the person overseas for whom it was intended. The aim would be to prevent the information being passed on to others or to prevent it being used for unconnected or undesirable purposes.
§ It is intended to use this power sparingly. Although I could not give a comprehensive account of the circumstances in which it might be used, the cases we have primarily in mind concern the possibility that disclosure might prejudice criminal proceedings in the United Kingdom. It might damage the reputation of the City for handling its clients' affairs with discretion; or the information might be used in legal proceedings overseas unconnected with the regulation of financial services. We would also not wish to see our information used to further proceedings which infringed the sovereignty of the United Kingdom. This power does not in any way detract from the Government's firm intention to promote international co-operation between regulators. It is sought merely to ensure that the information United Kingdom regulators gather is not abused. I beg to move.
§ Lord Silkin of Dulwich
I wonder if I might ask the Minister one or two questions about the clause. Can he tell the Committee whether there is any precedent for 750 it in other legislation? It appears to me, at any rate, to be a novel procedure. I do not think I have met it before. Secondly, is it intended to seek to prohibit by it disclosure to a person in another country of an action that prima facie would be within the competence of the courts of the other country concerned, so that by attempting to prohibit it we would appear to be exercising extra-territorial power? If so, that is something which we have eschewed in the case of other countries seeking do do similar things in respect of people in this country. I wonder whether the Minister can give me enlightenment on those matters.
§ Lord Lucas of Chilworth
The nearest precedent that I can think of is Section 2 of the Protection of Trading Interests Act 1980. It is not quite the same, but that is as near as I can get to it. So there is, in some respects, an element of novelty. To use the noble and learned Lord's words, yes, it is to an extent novel, as distinct from being a novelty. The noble and learned Lord asked about disclosure to another person in a different country. Yes, it is intended to cover this if the person overseas disclosing this information is a United Kingdom citizen, as indeed is the case in much the same way in the Protection of Trading Interests Act.
§ Lord Ezra
The noble Lord, Lord Lucas, in introducing the amendment, said that the proposed new clause was not intended to circumscribe the promotion of international co-operation between regulators. Of course, one of the important aspects of the whole Bill is that, while providing suitable safeguards for investors, the development of the financial services of this country should be continued in a world-wide sense. It is probably already known to the noble Lord that the Stock Exchange is a little concerned about some of the wording of the clause. It recognises that in certain cases information must be safeguarded; but it has notified certain noble Lords of its fears. I am reasonably convinced that it is justified in expressing some concern.
The Stock Exchange is developing in quite a big way to exchange with markets in other countries routine price and bargain data that form the basis of their commercial market information and settlement systems. It does not want this very positive and useful development that will strengthen the position of the Stock Exchange in this country in world terms to be in any way impeded or hindered. It is therefore suggested that it might be helpful if subsection (3)(a) of the new clause could be looked at again in order to overcome the fears that the present wording has created. I wonder whether the noble Lord is prepared to do that, so that we can look at the matter again at a later stage.
§ 5 p.m.
§ Lord Silkin of Dulwich
I am grateful to the Minister for what he has told us about this Bill. We shall obviously need to look at it again. It is an important principle. The noble Lord tells us that it is not completely novel. He has cited one semi-precedent that we shall want to look at. Apart from that we shall certainly want to look at the extra-territorial aspect of the clause. On the face of what the Minister has said it would appear that if a prohibition were made, then if information were given by, say, one US citizen to 751 another US citizen in the United States, this clause would be purporting to produce the result that the giver of information would be committing a criminal offence in this country. If that is so, it is a principle which certainly needs to be examined very closely and we shall take time between now and Report stage to look at it.
There is certainly no intention to wreck what may be an important provision. Perhaps the Minister in the meantime will write to tell us something about the thinking on this. On this aspect, which has been a source of litigation in this country in the past, the principle has been taken extremely seriously. Perhaps the noble Lord will write to tell us whether that has been fully considered and tell us what is the answer. That may well save time at a later stage.
§ Lord Lucas of Chilworth
I am grateful the noble Lord. I may very well take advantage of his invitation. On the point of extra-territoriality perhaps I may tell the noble and learned Lord that the clause is no more extra-territorial in its scope than the Protection of Trading Interests Act 1980. If I expand a little on that by way of a letter, that will probably put the doubts of the noble and learned Lord at rest.
He asked about where the power could be used. I can say that it cannot be used to prevent disclosure by a US citizen if he is in the United States.
Perhaps I may turn briefly to the point made by the noble Lord, Lord Ezra. I want again to stress that this is a power which would be used only sparingly. Where disclosure overseas would assist an overseas financial regulator that would be a factor that the Secretary of State would have to take into account in weighing up whether preventing that disclosure would be in the public interest. It is not a factor that he would lightly ignore.
I am sure that the noble Lord, Lord Ezra, accepts this point wholeheartedly. I want to emphasise that the Government are keen to promote international co-operation between regulators of financial services. We have specifically provided in this Bill for disclosure to assist overseas regulators. We have taken the opportunity afforded by the Bill to provide for the disclosure of information obtained under companies, insurance and banking legislation to overseas regulators. We are seeking to develop contacts between financial service regulators and are, for example, negotiating a memorandum of understanding on exchanging information with the American Securities and Exchange Commission and with the Commodities Futures Trading Commission.
I am aware of the concern that has been expressed by the chairman of the Stock Exchange. The noble Lord, Lord Ezra, will probably know that the chairman wrote to my honourable friend the Minister in another place a day or two ago. My honourable friend has replied. In his letter he specifically says to the Stock Exchange that the Government have deliberately gone for a wide power of discussion to ensure that if we should ever need to use it, we have all the necessary powers to act quickly and flexibly. We would want to assure the chairman of the Stock Exchange that it is intended to use the power only sparingly.
752 In my earlier speech to the Committee I sought to identify some of the concerns that we have. I should perhaps add that these also include anti-trust actions. Accepting what the noble and learned Lord, Lord Silkin, had to say, on consideration I believe that these amendments are a useful addition to the Bill without impeding our international competitivenes or our ability to co-operate with other international financial centres.
§ Schedule 11 [Disclosure of information]:
§ Lord Brabazon of Tara moved Amendments Nos. 351 to 353:
§ Page 198, line 10 at end insert—
§ "(2A) Nothing in subsection (1) above prohibits the disclo-sure of information by the Bank to any person specified in the first column of the following Table if the Bank considers—
- (a) that the disclosure would enable or assist the Bank to discharge its functions under this Act; or
- (b) that it would enable or assist that person to discharge the functions specified in relation to him in the second column of that Table.
|The Secretary of State.||Functions under the Insurance Companies Act 1982 or the Financial Services Act 1986.|
|The Chief Registrar of friendly societies or the Registrar of Friendly Societies for Northern Ireland.||Functions under the Financial Services Act 1986 or under the enactments relating to friendly societies.|
|A designated agency or transferee body or the competent authority (within the meaning of the Financial Services Act 1986).||Functions under the Financial Services Act 1986.|
|A recognised self-regulating organisation, recognised professional body, recognised investment exchange, recognised self-regulating organisation for friendly societies (within the meaning of the Financial Services Act 1986).||Functions in its capacity as an organisation, body, exchange or clearing house recognised under the Financial Services Act 1986.|
|A person appointed or authorised to exercise any powers under section 81, 93 or 147 of the Financial Services Act 1986.||Functions arising from his appointment or authorisation under that section.|
§ (2B) Nothing in subsection (1) above prohibits the disclosure by a person specified in the first column of the Table in subsection (2A) above of information obtained by him by virtue of a disclosure authorised by that subsection if he makes the disclosure with the consent of the Bank and for the purpose of enabling or assisting himself to discharge any functions specified in relation to him in the second column of that Table; and before deciding whether to give its consent to such a disclosure by any person the Bank shall take account of any representations made by him as to the desirability of or the necessity for the disclosure.".
§ (2) For subsection (6) of that section there shall be substituted—
§ "(6) Nothing in subsection (1) above prohibits the disclosure of information by or with the consent of the Bank for the purpose of enabling or assisting an authority in a country or territory outside the United Kingdom to exercise functions corresponding to those of the Bank under this Act, or to those 753 of the Secretary of State under the Insurance Companies Act 1982 or the Financial Services Act 1986 or to those of the competent authority under the said Act of 1986 or any other functions in connection with rules of law corresponding to the provisions of the Company Securities (Insider Dealing) Act 1985 or Part VII of the said Act of 1986.".
§ 2B. In section 20(4) of that Act—
- (a) for the words "in a country or territory outside the United Kingdom" there shall be substituted the words "in a member State other than the United Kingdom"; and
- (b) in paragraph (b) for the words "subsections (4) to (6)" there shall be substituted the words "subsections (2A). (2B) and (4) to (6)".").
§ Page 198. line 43. leave out ("word "436" ") and insert ("words "to 436" ").
§ Page 198. line 44. leave out ("word "437" ") and insert ("words "to 437" ").
§ Clause 152 [Reciprocal facilities for financial business]:
§ On Question, Whether Clause 152 shall stand part of the Bill?
§ Lord Williams of Elvel
We now come to part of the Bill which concerns reciprocal arrangements, or "reciprocity" as the Title says. I confess to having one or two qualms—one under this clause and the other under Clause 154 to which I shall come later.
I wonder whether the noble Lord can help me with my qualms. We have in this world international organisations which, for one reason or another, wish to do business in countries which are not their countries of domicile. In general the way to prevent such businesses doing what we in the United Kingdom feel they should not do in our domicile has to date, I think I am right in saying, been by persuasion and by unwritten rules. Let us take, for instance, the case of a stockbroker. If the stockbroker is a member of the New York Stock Exchange, we say that on the whole the Stock Exchange rules and regulations will say that he cannot be a member of the London Stock Exchange unless similar facilities are granted to London stockbrokers in New York. I recognise that all that is changing with the changes in the City of London. Nevertheless, I have certain doubts—I hope that the Minister will be able to satisfy them—about putting that kind of provision in a statute in this country, because it is perfectly possible that when other countries see this in our statute they may wish to put similar provisions in their statutes. I wonder whether the noble Lord can tell me how many other countries have these kinds of provisions in their statutes. I shall continue to speak for a moment, although I am sure that the noble Lord has the answer in his head, in which case I may not have to continue.
When we are talking, as we have to do in relation to financial services, in terms of great flexibility and trying not to lay down precise rules about what should happen and who is where (indeed, we have already talked about differences and difficulties of interpretation of various matters such as investments and investment businesses). I am worried about 754 whether that should go into the primary legislation of the land. I would welcome comments from other noble Lords who may share my doubts. However. I hope that the noble Lord opposite will be able to satisfy me.
§ Lord Lucas of Chilworth
I think that I could have provided the answer. I do not know whether I can settle the noble Lord's qualms in one go, but I shall most certainly try to do so. Indeed, I wonder why the noble Lord raises this particular question, because as I understand it when this matter was being considered on Report in the other place it received support from all parties. The Official Opposition spokesman said in broad terms: "As the Government know, we, the Opposition, welcome the reciprocity provisions." I refer the Committee to Hansard of 11th June, col. 436.
§ Lord Williams of Elvel
I am not quarrelling at all with the idea behind the legislation. I am just worried about whether certain matters should be in primary legislation or in another form. I am not quarreling with the principle. We support the principle and I support my honourable friend Mr. Gould in another place. However, I am a little concerned that it should be in primary legislation rather than in another form.
§ Lord Lucas of Chilworth
I am most grateful to the noble Lord, because that saves me, and indeed the Committee, a great deal of time. When financial market access is imperfectly reciprocated in a country abroad, this clause would enable the Secretary of State or the Treasury to serve a notice on a person connected with that country. Succeeding clauses—and I think that the noble Lord wants to discuss some of them in a moment or two—state the effect of different types of notice: disqualification notices, restriction notices, and partial restriction notices.
The Committee will be aware that not all foreign financial services markets are as open as ours. We need a defensive power of this kind to help our firms to get the same kind of access to those markets as their firms enjoy here. Most countries have such powers. Indeed, Belgium, Denmark, France, Germany and Austria are among those countries which have such powers. Frankly, we believe that it is only common sense.
The important point here—and I recognise the disquiet, if I can call it that, which lies at the back of the mind of the noble Lord, Lord Williams—is that the power is discretionary. I do not want to speculate on exactly what circumstances may provoke us to use it or against what country. I do not think that that would be helpful. Indeed, I am really saying that I hope that we shall never be forced to use the power, but I have to say that we would not hesitate to do so if it should become necessary. The provision demonstrates our determination that British financial houses should not suffer unreasonably in international competition.
This part of the Bill is not a major departure from the City's openness because it will only be used in the last resort to defend the national interest. Subsection (2), with its requirement that action must be considered to be in the national interest, is an earnest of the Government's intention that this power should never be used lightly. The City's openness is part of its 755 strength, but the ability- of-British firms to compete worldwide is no less important.
Clause 152 also allows a notice to be served in relation to investment business, insurance business or banking business on the grounds of access being imperfectly reciprocated in any one of those three sectors. In other words, a notice could be served on a banking business in response to imperfect reciprocation in some part of investment business. The additional flexibility which this provision affords for furthering British interests is, we believe, an additional reason for legislating in this respect for all parts of the financial services sector. It is that thinking that underlies the provision that we have put into the Bill. I hope that it is helpful to the noble Lord and to the Committee.
§ Clause 152 agreed to.
§ Clause 153 [Investment and insurance business]:
§ 5.15 p.m.
§ Lord Brabazon of Tara moved Amendment No. 354:
§ Page 123, line 40, after ("or") insert ("certification by a").
§ The noble Lord said: This amendment was spoken to with Amendment No. 79. I beg to move.
§ Clause 153, as amended, agreed to.
§ Clause 154 [Banking business]:
§ On Question, Whether Clause 154 shall stand part of the Bill?
§ Lord Williams of Elvel
I wish to raise essentially the same question that I raised in respect of the Question Whether Clause 152 shall stand part, only in this case we are concentrating on banking institutions rather than on general financial services institutions. I can see very good reasons why the practice should be there. I believe, for instance, that the Swiss, the Americans, the Italians, the Australians and others have exactly these provisions but without actually writing them into primary legislation. It is very difficult to form a banking operation in Switzerland—and I speak as one who knows—although there is nothing in Swiss law which says that reciprocal arrangements shall, by statute, apply.
In the case of a bank, of course, it is more serious because the disqualification notice shall have the effect of cancelling any recognition or licence granted to the person concerned under the Banking Act 1979. A bank will have made very considerable investments. If for some reason or another it is decided that, for example—and I shall name a country which is perhaps not in the noble Lords's mind—Afghanistan is not giving us proper reciprocal facilities and we suddenly cancel the licence or the recognition of Afghan banks in London, it seems that it would be a slightly more serious affair than simply not allowing people in. Therefore, although I appreciate and accept the thrust of what the Government are trying to do, my doubts still remain on this matter and I wonder whether the noble Lord would like to comment.
§ Lord Lucas of Chilworth
I thank the noble Lord, Lord Williams. I can understand his doubts. I do not know whether I shall be able to allay them, but he invited me to comment on the matter and I accept his invitation. We would like it known that, as with investment business, there is in some countries an imbalance of access against UK banking institutions. Clause 154 is primarily intended to signal to the authorities in those countries our deep concern that this imbalance exists and our determination that it should not continue indefinitely. To that end, it provides reserve powers which again we hope it will not prove necessary to use. But the powers will exist and by this means we hope further to encourage them to open their markets and to promote free and equitable trade in banking services. I should say to the Committee that we believe that our intentions in this matter have not gone unnoticed.
If we did not have Clause 154, I believe that it would demonstrate to the authorities concerned that we have lost our resolve, particularly since a number of other nations, as the noble Lord, Lord Williams, reminded us, have such powers in place. It would, I think, weaken the Government's position and the position of United Kingdom institutions in arguing for reciprocal access abroad.
The deletion of Clause 154, while retaining Clause 153, would make this acute. It would do this by heightening the apparent lack of resolve over banking, as against investment business, and, worse, it would be less than good sense to separate the treatment of banking and investment business, given the closely related problems of access that they face.
The noble Lord asked—perhaps it was not a rhetorical question—why it is necessary to have this in statute. It is because we believe that without it it would be an improper exercise of statutory power and would be judicially reviewable. I think we acknowledge throughout the Committee that there is a common problem which requires a common solution, and we believe that in Clauses 152 to 155—obviously including Clause 154—we have that common solution to hand.
§ Lord Silkin of Dulwich
Before the Minister sits down, I wonder whether he would be kind enough to say how it is intended to make the choice as to which institution or institutions from the particular country concerned will be the unfortunate recipient of a notice under any of these clauses.
§ Lord Lucas of Chilworth
No; I am going to refuse that invitation. I do not think it would be helpful to the Secretary of State if I were to pose a hypothetical situation and give it a hypothetical answer. I believe that the Secretary of State would have to judge each case upon its merits from whatever sector it comes.
§ Clause 154 agreed to.
§ Clause 155 [Variation and revocation of notices]:
§ Lord Brabazon of Tara moved Amendments Nos. 355 and 356:
§ age 125, line 36. at end insert ("certification by a").
§ Page 126, line 8, after ("or") insert ("certification by a").757
§ The noble Lord said: I spoke to Amendments Nos. 355 and 356 with Amendment No. 79. I beg to move.
§ Clause 155, as amended, agreed to.
§ Lord Graham of Edmonton moved Amendment No. 357:
§ After Clause 155. insert the following new clause:
§ ("Publication of information and advice:
- .—(1) The Secretary ofState may give or publish, or arrange for the giving or publication, in such form and in such manner as he may consider appropriate, of such information and advice as may appear to him to be desirable for the protection of investors.
- (2) Without prejudice to the generality of subsection (1), such information and advice may relate to—
- (a) the rights conferred on investors by or under this Act and the steps necessary to have them enforced;
- (b) the duties imposed on authorised persons by or under this Act and the steps necessary to comply with them; and
- (c) any matter relating to any function exercisable by the Secretary of State under this Act. or under any rules or regulations made under it.
- (3) In arranging for the giving or publication of any such information or advice, the Secretary of State shall have regard to the need for excluding, so far as that is practicable:—
- (a) any matter which relates to the private affairs of an individ-ual, where the publication of that matter would or might, in the opinion of the Secretary of State, seriously and prejudicially affect the interests of that individual; and
- (b) any matter which relates specifically to the affairs of a particular body of persons, whether corporate or unincorporate, where publication of that matter might, in the opinion of the Secretary of State, seriously and prejudicially affect the interests of that body.").
§ The noble Lord said: As the note in the margin states, this amendment deals with the publication of information and advice. I am fairly sure that the Committee will welcome any specific duties that are laid upon the Secretary of State, and thereafter by transfer of his powers to the designated agency, which are designed to encourage that agency to be bold in carrying out its responsibilities to those whom it seeks to serve.
The words of the amendment state:
may consider appropriate, of such information and advice as may appear to him to be desirable for the protection of investors".
§ The new clause would create an express statutory function for the Secretary of State to give or to publish information and advice. I have to say—as the Minister has no doubt been advised—that it is based on a power given to the Director General of Fair Trading to publish information and advice to consumers. I believe that that power has been useful to the Director General of Fair Trading and would certainly be equally useful to the designated agencies. We are talking in terms of advice and guidance, specific and general, of booklets, of guidance, of explanatory notes and of a great many other things.
§ It may be suggested—I sincerely hope that it is not—that an express statutory function is not needed in order to be able to give out or publish information and advice. But I hope that, if that is part of the notes of the Minister, we can at least pause and reflect, because the express statutory function which I am seeking to insert into the Bill has two important benefits where the owner is transferred to the designated agency. First, it puts beyond doubt that the agency is able to recover the necessary cost by way of 758 fees. Secondly, and most important, it brings it within the scope of its exemption from liability to damages under Clause 156(3).
It may be helpful if I briefly read into the record what Clause 156, dealing with exemption from liability for damages, states. Subsection (2) states:
The functions to which subsection (1) above applies are the functions of the organisation so far as relating to. or to matters arising out of".
Then there is a list of matters that properly will give rise to the designated agency carrying on its work. But subsection (3) states:
Neither a designated agency nor any member, officer or servant of a designated agency shall be liable in damages for anything done or omitted in the discharge or purported discharge of the functions exercisable by the agency by virtue of a delegation order unless the act or omission is shown to have been in bad faith".
§ Subsection (1) of this amendment creates a general power to give or publish information where it appears desirable for the protection of investors. This is wider than the equivalent power given to the Director General of Fair Trading, because it refers expressly to the giving of advice as well as to the publishing of it. It would accordingly be possible to use the powers to give advice to a single investor, rather than only for publication to investors generally. Subsection (2) gives some examples of the expected use of the general power and also broadens it out, so that information or advice can be given in the specific case mentioned even where it may be open to question whether that was desirable for the protection of investors. Subsection (3) is drawn from the power of the Director General of Fair Trading and is designed to avoid the use of the power infringing people's personal privacy.
§ If there is any question of not accepting the amendment or the spirit of it, I want the Minister to note that in subsection (3), particularly in paragraphs (a) and (b), we are mindful of matters that shall not be given the power of protection or exclusion. In terms of paragraph (a), we are talking of the private affairs of an individual, and in paragraph (b) of the affairs of a particular body or persons. I believe that this is sensible and desirable, and, if we are to get this new arrangement off to a good start, we want the SIB and MIBOC to feel uninhibited. I am not talking about recklessness. I am talking about sensible and prudent people who are appointed by the Secretary of State. But they still need to feel, in giving advice and guidance which they ought to be able to give in good faith, that if something goes thoroughly wrong they will be protected. That is the genesis of this amendment. I beg to move.
§ Lord Brabazon of Tara
I am grateful to the noble Lord, Lord Graham of Edmonton, for having moved this amendment. I agree with him that it is desirable that the Secretary of State or the agency should have the function of giving or publishing information and advice, and, if it were to be transferred to the agency, then the agency could fund it out of statutory fee income and would be covered by the immunity from damages in Clause 156. But I am bound to say that my advice is that the amendment as it stands would not enable the functions to be transferred from the Secretary of State to the agency. Indeed, there may be other points in the amendment that we should like to look at. However, if the noble Lord is prepared to 759 withdraw the amendment at this stage, I will give an undertaking that the Government will bring forward a suitable amendment at the next stage of the Bill.
§ Lord Graham of Edmonton
I accept that undertaking with alacrity and appreciation. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 156 [Exemption from liability for damages]:
§ 5.30 p.m.
§ Lord Silkin of Dulwich moved Amendment No. 357A:
§ Page 126, line 18, after ("damages") insert ("at the suit of any member of the self-regulating organisation or of any person, whether authorised or not. whom the organisation is authorised by this Act to investigate or supervise").
§ The noble and learned Lord said: I beg to move Amendment No. 357A, and it might be for the convenience of the Committee to take with it Amendment No. 362A. Clause 156 is the important clause that conveys immunity to SROs. There is no dispute about the principle of immunity. The question the Committee must address is how far that immunity should extend and within what limits it should operate.
The clause as it stands provides that in some ways immunity is limited and in other ways it is very wide. Subsection (1) provides that immunity extends to liability in damages,
for anything done or omitted in the discharge or purported discharge of any functions to which this subsection applies unless the act or omission is shown to have been in bad faith".
§ Damages appears to be the area where the immunity operates.
§ Apart from damages it would appear that the clause does not affect the liability of a SRO. It would not, for example, affect the liability of a SRO if proceedings were taken for a declaration, or an injunction where it is suggested by the plaintiff that the SRO has gone beyond its powers, quite apart of course from the exception of "bad faith", incorporated in the Bill already which would apply even to a claim for damages. Therefore, in that respect the immunity is limited.
§ However, it is wide in the sense that it appears to be irrelevant who the plaintiff may be, or what complaint he may be making against the SRO. A person other than one who is a member of a SRO, or a person who is seeking to become a member of a SRO and is for some reason refused the necessary authority, is still within the provisions of the clause. It is difficult to follow why such an outside person should be disentitled to claim damages even if one accepts, as we do, that a member of a SRO, or a person who wishes to be a member and who is not permitted to become a member, should not be in a position to claim damages.
Amendment No. 357A therefore seeks to limit the immunity to those who are members of the SRO concerned, or,
any person, whether authorised or not, whom the organisation is authorised by this Act to investigate or supervise".
§ In other words, if the amendment is accepted, the limitation would be such as to enable what one might call an ordinary member of the public who suffers some harm from the activities of a SRO to have a normal claim for damages, but would exclude the claim, and grants immunity, in the case of members or those who may aspire to be members. It is difficult to see why a wider immunity than that is required, and if it is not, then it is plainly undesirable that it should be granted.
I come to Amendment No. 362A. It divides into two subsections which might have been put under separate headings, but it is convenient to take them together. The first proposed new subsection seeks to extend the term "bad faith" so that its embraces anything which may be,
done in breach of the rules of natural justice".
§ We had a debate on that before, and I do not intend to speak at length about it.
I am not clear whether the term "bad faith" is intended in the Bill to include,
breach of the rules of natural justice",
§ but a point arises here which is quite different from the point which arose on my previous amendment. There I was seeking to incorporate in the Bill the specific provision, in relation to inspections under the insider trading provisions, that the rules of natural justice shall apply.
In the case of this amendment the position seems to be that if the expression "bad faith" as such does not include,
breach of the rules of natural justice",
§ there is no provision which enables a claim for damages to be made where the rules of natural justice have not been complied with. Therefore, the position here is not that referred to by the noble Viscount in the earlier debate when he suggested that the provision was not necessary. Here such a provision would be necessary in order to ensure that in the circumstances of the breach of the rules of natural justice a claim for damages would lie. That is that part of Amendment No. 362A.
§ The next part covers a different point altogether. It is a point that arises out of the uncertainty that prevailed in many quarters as to the position where in some other country a claim for damages is made under the law of that country which, by virtue of this clause, could not be made in this country; in other words, where, in the United States of America, for example, a claim for damages is made. This is a considerable possibility where there are foreign institutions operating in this country, which, as we have heard on many occasions is likely.
§ On the best view that I can get on this at the moment it might be possible for such a claim to be made in a foreign country, in which case it would defeat the purpose of this clause. That view may be wrong. I am not putting it forward as authoritative. I am simply saying that it is the best view that I can establish at this moment. The Minister may be able to guarantee that it could not happen, but if it could happen, if there is any possibility of it happening, then clearly the immunity provisions would be defective to that extent. This amendment copies the language on reciprocity of 761 the clauses we have just been discussing so as to incorporate the powers given by those clauses to enable the Secretary of State or the Treasury to take similar action if it should happen that in some other country a person were able to enforce a claim for damages in the courts of that other country. That is the simple purpose of that part of Amendment No. 362A. If the assumption is right that this could happen then the Committee may feel that some provision should be made to enable it to be prevented. I beg to move.
§ Lord Hacking
This is an interesting amendment which I believe is worthy of some further consideration by this Committee. I say that in relation not only to SROs, to which this amendment is directed, but also in relation to recognised professional bodies. RPBs. to which the amendment is not directed. The circumstancs in which either SROs or RPBs need to act fearlessly and decisively concern actions which relate to their own membership. They need to act fearlessly and decisively because of the need to protect investors. By acting fearlessly and decisively they protect investors.
This is really running a trailer towards my own amendment, because if this amendment were adopted I am wondering whether the noble Lord, Lord Benson, and I would not have the support of both the Opposition and the Government with the amendment that we are shortly to move.
Viscount Colville of Culross
My Lords, I wonder whether I may say a word about these two amendments moved by the noble and learned Lord, Lord Silkin. He may be right on the natural justice point under Amendment No. 362A. I am afraid that 1 too have not had enough time to look it up, but I think the situation is probably something like this: if he remembers what was said by Lord Greene, the Master of the Rolls, in Associated British Picture Houses v. Wednesbury Corporation (which is really the fountain of all this administrative law jurisdiction) he will remember clearly that bad faith is one of the grounds upon which you can get an administrative decision which affects the rights of the citizen overturned by what is now judicial review, although it was not in those days.
It was run at that time under a rather strict regime of what used to be the prerogative writs. But now I think he will find that in Order 53 (which is what now governs judical review) not only bad faith but the other breach of natural justice will give rise to an application to the court. What is more the remedies are now wider to enable the court to award not only an order that overturns the decision but also damages as well. Therefore it is not necesssary to say what he says in the first subsection in Amendment No. 362A because that is already inherent in the powers of the court if one makes the right sort of application and I think in any event, because the courts can use these powers in their discretion under Order 53 and judicial review.
I therefore suggest that this again is an occasion where one would draw attention unnecessarily in a statute to something which applies overall to a vast number of situations upon which one might then 762 throw doubt. Although it may be a different point the end product is likely to be very much the same.
§ 5.45 p.m.
§ Lord Silkin of Dulwich
I do not altogether follow that point. What we are dealing with here is the revision of a clause which excludes a claim for damages in any case other than a bad faith case. I do not see how in those circumstances that would include the wording that the noble Viscount has just referred to.
Viscount Colville of Culross
I think the noble and learned Lord has to give the courts credit for being able to deal with this sort of thing. There have been many cases. I suppose the acme of the whole thing was Anisminic, when the courts had been able to spell out even of the most restrictive jurisdiction in a statute, the ability to produce a remedy where it is needed. I should have thought there was no difficulty in going beyond bad faith as such, which is the test for the purposes of the transaction inside the self-regulating organisation and also to take in any complaint about any further defalcation or any other failure to observe the rules of natural justice which led up to a decision by that self regulating authority. I suggest to the Committee that I do not think there is any necessity to go further than to spell this out, because Order 53 includes it already.
What I fail to understand in relation to the noble Lord's original amendment, Amendment No. 357A, is that, if he is suggesting that an ordinary' member of the public should be able to sue the self regulating organisation itself for something that has gone wrong, one has to envisage the situation that would predicate that sort of action. It must be that an investor has suffered a loss as a result of taking the advice of or going to seek the services of some investment agency which has been improperly authorised by the self-regulating organisation or which should have been struck off if the self-regulating organisation had been doing his job properly.
I can quite see that there could be a loss at that stage, but what I do not understand the noble Lord to have addressed himself to is the way in which this inter-relates with the other remedy that that person has under Clause 57 of the Bill, which we discussed last week. That also applies in subsection (2) to members of a recognised self regulating organisation or a recognised professional body. The person who has come to grief in the course of this transaction has already under the Bill been given a remedy against the person who is primarily responsible.
Are we to go further and to say that in addition to that they are to have a remedy against the body itself which perhaps ought to have disciplined the investment organisation which was primarily responsible for the fault? I can see that that is an insurance policy, but then think of the implications of it in relation to the people who are supposed to be turned into a self regulating organisation, the members and the officers. Not only will the people under their care be liable for their own defects, but the members of the SRO and the officers themselves will also fall liable for this sort of thing. I cannot see how one can suppose that we shall be able to obtain the services of 763 people to act in the fearless way that has been suggested and to look after all these investment agencies if they are liable at the suit of any member of the public for damages in large sums of money. I should have thought that the generality of the clause which was inserted in another place is exactly what is needed in order to secure that there really will be an effective watchdog system. I leave the noble Lord with this thought. If this were going to be done not by a self-regulating organisation or one of the RPBs, presumably it would have to be done by the department. If the department refused to license some particular investment organisation, or if it withdrew the licence, does the noble Lord suppose that the department would be liable in an action for civil damages at the suit of an individual member who had come to grief because of the activities of the investment adviser or somebody like that? I do not believe that that is so in the least. These SROs and RPBs are doing a job as delegates of the department and I believe that they should have the same immunity.
§ Lord Lucas of Chilworth
I found this three-cornered lawyers' discussion absolutely fascinating. I trust that the Committee will forgive me if I do not follow each and every noble Lord down his own particular path. I should like to put quite simply the Government's view about this series of amendments. I am grateful to the noble and learned Lord, Lord Silkin for addressing his remarks to Amendments Nos. 357A and 362A together. These matters are important and the whole purpose of recognised self-regulating organisations is to provide investors with the protection that they deserve. Obviously, against that background we had to think very hard before concluding that such organisations should be immune from actions for damages brought at the suit of investors. Nevertheless, we concluded on balance that such immunity should be provided. I have to say that I listened very carefully to what the noble and learned Lord, Lord Silkin, said, as I listened very carefully to what my noble friend Lord Colville of Culross said, and I am not convinced that the noble and learned Lord opposite has said anything that should cause me to change my mind.
We have to remember that not all investors are small, private investors, notwithstanding the fact that we seek to introduce by way of wider share-ownership programmes the small private investor. The largest companies and institutions are also investors and their financial resources will far outstrip those of even the most powerful self-regulating organisations. If these organisations were liable for damages to investors, they could still be at risk from a number of large claims. A regulator will face a number of difficulties in deciding when to remove a business or authorisation, particularly on solvency grounds. The situation is rarely clear-cut. There are always arguments that, given another week or so, more capital can be found or a valuable asset can be sold and the problem will be resolved. But the interests of existing clients and others already dealing with the business will often suffer if authorisation is removed.
Such action nevertheless may be necessary to prevent harm to future clients. Existing clients and 764 those dealing with the business would suffer more seriously if the business collapsed. But they may claim that the supervisor's action was unnecessary and the business would not have collapsed if given more time. They might then bring an action for damages against the supervisor on the grounds that their loss was the direct result of the supervisor's action. For example, a United States securities firm might use a British self-regulating organisation member to manage it clients UK portfolio. If that SRO expels the British business or stops it undertaking particular activities because of concern about its solvency, the United States firm—and I just pick the United States; it could be any company, and I hope nobody will take exception to my using this as an example—might sue the self-regulating organisation for the loss it suffered as a result of missed opportunities, damage to reputation, and so on. This threat could be a very serious one. It could put the SRO's future at risk.
We do not believe—and I think that this is one of the points that my noble friend Lord Colville made—that SROs should have this kind of threat hanging over them when taking difficult decisions. If they do have it hanging over them, there is no doubt that the quality and effectiveness of regulation will suffer and, in turn, the interests of the investors will suffer. The investors will not be deprived of remedies. They still will be able to sue a member of a recognised self-regulating organisation if he breaches the rules. They would have access to the compensation arrangements where appropriate. It is particularly important to note that the compensation proposals which SIB—and one has to make certain assumptions here—have put forward are biased in favour of the smaller, private investor. I think that this will help to ensure that the interests of such investors will not be seriously affected by the immunity granted to recognised self-regulating organisations which is necessary for the reasons I have outlined. I do not propose at this time to repeat some of the points my noble friend Lord Colville has made with regard to the composition of the SROs and the degree of responsibility that we would wish them to take.
I turn to Amendment No. 362A of the noble and learned Lord, Lord Silkin. The first subsection of this amendment would have the effect that anything done or omitted in breach of the rules of natural justice would automatically be regarded as being in bad faith. The result would be that any such act or omission would fail to attract the immunity granted by the clause. We consider that, to the extent that any breach was not in bad faith, the amendment would result in the very uncertainties and risks that the immunity provisions are seeking to remove so that regulation can be effective. Our starting point for this provision is that so long as regulators act in good faith they should not have to worry about the threat of actions in damages. The principles of natural justice and the general duty to act fairly are constantly being developed by the courts. So long as this continues, there is likely to be some uncertainty at any time about their scope. It would be undesirable to tie the concept of bad faith to breach of such principles—when, in fact and in law, there had been no bad faith.
The second and third subsections in the amendment would seek to trigger the reciprocity provisions in the 765 Bill in the event that a foreign court gave a judgment which, by virtue of the provisions of the clause, would not have been enforceable in the United Kingdom had it been given here. I am advised that there is great ingenuity in this proposal, but we are not convinced that it would have the effect that the noble and learned Lord has claimed for it. It would not, and could not, restrict any right of action against a regulator which a person might have under foreign law. So the risk of such an action would remain, and the prospect that action might subsequently be taken against businesses connected with the country concerned would be of little comfort to a regulator contemplating action against an investment business. Moreover, the amendment would be of little help if the aggrieved party were a large and powerful investor who had no intention of carrying on investment business in the United Kingdom.
In any event, we would be hesitant about extending the scope of the reciprocity provisions in this way. Clauses 152 to 155, which we have discussed, are designed for the special purposes of strengthening our hand in negotiating better access to overseas financial markets. The question at issue here is nothing to do really with negotiating better access, and I think it preferable that the two issues should be kept separate. There are other objections of principle to this aspect of the amendment. It would, for example, give the authorities in this country power to retaliate against a foreign business on the grounds that the courts in this country take some action—not necessarily involving that business—which is properly open to them under the laws of that country.
The procedure which is provided for in the amendment could be seen as an interference with the proper exercise of the jurisdiction of foreign courts. Where foreign courts infringe our territorial jurisdiction then we reserve the right, and have powers, to act. But where there is no question of extraterritorial exercise of jurisdiction by foreign courts it would, we believe, come close to interfering with the sovereignty and jurisdiction of other countries to seek to impose sanctions on those connected with them because their courts award damages in a case where we—for our part—think it undesirable. We should not like such a threat hanging over our courts or subjects and I do not think we should seek to do it to others.
In the light of these comments, which I recognise the noble and learned Lord may wish to study, I do not think that I can help the Committee any further, I have outlined as best as I am able why we object to the amendments. I hope he will agree with our objection and indeed that he will agree to withdraw his amendments.
§ Lord Silkin of Dulwich
We are of course grateful, and the Committee will be grateful, to the Minister for that extremely detailed explanation of the Government's position. On the first amendment and the first part of the second amendment, the noble Lord referred to the views expressed by the noble Viscount. It seemed to me (and I shall have to read carefully in Hansard the speeches of both the noble Lord and the noble Viscount) that they reached the same conclusion for quite opposite reasons. However, we shall see 766 about that when we read Hansard and, as the Minister has suggested, if necessary come back to one or other of these points on another occasion.
I have qualms about the third point. The Minister has accepted the possibility that proceedings might be brought in a foreign country, as I understand it, and in effect, if I understood his reply, he said, "If that happens, it is just unfortunate that we cannot really do anything about it". That does not seem to me to be a very satisfactory way of leaving the matter, whether or not what he described as the ingenious method of dealing with the amendment put forward is followed. Again, it seems to me better, particularly in view of the highly detailed nature of the reply, that I should look at it with others who are concerned, and maybe come back to it at the next stage. In the light of that. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Lord Hacking moved Amendment No. 358:
§ Page 126. line 34, at end insert—
§ ("(2A) Neither a recognised professional body nor am of its officers or servants or members of its governing body shall be liable in damages for anything done or omitted in the discharge or purported discharge of any functions to which this sub-section applies unless the act or omission is shown to have been in bad faith.
§ (2B) The functions to which subsection (2A) above applies are the functions of the body in respect of this Act so far as relating to. or to matters arising out of—
- (a) the rules, practices, powers and arrangements of the body to which the requirements in section 18(2) apply;
- (b) the obligations with which paragraph 6 of Schedule (Requirements for recognition of professional body) requires the body to comply:
- (c) any guidance issued by the body.
- (d) the powers of the body under section 49(2), 59(4) or 92(2)(a) above: or
- (e) the obligations of a recognised professional body under this Act.").
§ The noble Lord said: This amendment which stands in the names of myself and the noble Lord. Lord Benson, seeks to obtain immunity for recognised professional bodies, RPBs, on the same basis as immunity is now granted—or is proposed to be granted under the Bill—to SROs.
§ It may be helpful if I ask the Committee to take a step back and review the position and how the Bill is now, in its present state, granting immunity to the designated agency, the SIB, which it does under Clause 156(3), and to SROs under Clause 156(1) and (2).
I asked the Committee to step back and look at the position, because when this Bill was originally introduced in another place there was no immunity proposed in it for SROs. But as a result of representations that were made to the Government, not very early in the passage of the Bill in another place but at the Report stage, the Government changed their position and agreed that immunity should be granted to SROs. At that stage in the debate in another place, the Minister, Mr. Michael Howard, who has the responsibility for this Bill in another place, stated this:
If regulation is to be effective, a recognised self-regulating organisation needs to be able to act swiftly and decisively, sometimes on less than conclusive evidence, if it seems necessary to do so. in the interests of investors. However, its financial resources will often be smaller than those of its members or others affected by its actions. There is a real risk that the prospect of a number of large claims for damages would deter a recognised self-regulating
organisation from taking the actions that it believed to be necessary. That would not be in the interests of investors".
§ Incidentally, that focuses upon its supervision of those over whom the SRO has the responsibility to supervise.
The Minister, Mr. Howard, in another place then went on to say this:
There is a real danger that individuals might be reluctant to work for or serve on the governing bodies of SROs if there were a risk of personal liability in damages for actions undertaken in good faith. It is essential, if self-regulation is to work properly, that SROs should employ and be run by people of the highest calibre. Anything that would deter such people from joining SROs could seriously affect the effectiveness of the organisations in regulating investment business".
§ Thus it is my simple premise, in tabling this amendment, that exactly the same rules should apply to RPBs such as the Institute of Chartered Account-ants or my own parent organisation, the Law Society. Regrettably, despite a number of representations that have also been made by them to the Government, thus far the Government have not been moved to bring in the same provision—the same immunity—to RPBs.
§ In another place, during the course of the same debate on Report, the Minister gave these reasons. He said that RPBs would be regulating a much narrower range of business on a much smaller scale than would SROs. The prospect of a number of large claims against an RPB is therefore much smaller than in the case of an SRO. "In these circumstances", he said "I don't believe that it would be appropriate to extend immunity to RPBs".
§ The Minister then went on to make another point. "It would certainly be anomalous", he is recorded as stating, "for RPBs to have immunity when they are regulating incidental aspects of their members' business when they do not have it, or do not appear to have needed it, in relation to the regulation of their members' mainstream professional practice".
§ I do not believe that either of these arguments, which have been repeated in correspondence, bears proper examination. It is true that RPBs will not be authorising their members to act, for example, as dealers in investments like Stock Exchange firms, and equally RPBs will not be authorising people whose principal activity is investment business. But a relatively small amount of investment business undertaken by professional firms, perhaps advising on investment, may well incur, and be the cause of, very large claims for damages. An RPB therefore would still be vulnerable to large claims.
§ While it is also true that RPBs have not required immunity hitherto for their other regulatory functions, neither, for example, has such an SRO, as the Stock Exchange. However it is accepted that SROs will need immunity in the future because of the new statutory responsibilities they will have under this Bill and because of the new responsibilities which will be imposed upon them. Yet this applies equally to RPBs and that is why, if we are talking of anomalies, it is an anomaly that RPBs are being treated in a different manner.
§ I can cite, as I cited at Second Reading, the circumstances in which, for example, the Law Society would have responsibilities under the Bill and how 768 those responsibilities could be adversely affected by not having immunity. The main part of those responsibilities—and this goes back to a comment I made during our discussion on the last amendment—will be directed towards the supervision and investigation of those over whom it will be responsible to see that they are properly carrying on their investment businesses under the Act.
§ It is for that reason that I suggested when discussing the amendment of the noble and learned Lord, Lord Silkin, that there may well be a joinder point between the position taken by the Opposition and that taken by the Government. Therefore, in my submission, if there is any real prospect—and that is how it has been presented by the president of the Institute of Chartered Accountants and by the president of the Law Society—that those bodies may be inhibited—or persons may be discouraged from serving on those bodies—because of a lack of immunity, particularly, I would emphasise, in relation to imposing disciplines on those who will be carrying on investment work under their authority. Therefore, I would urge the Committee to give favourable consideration to this amendment, and I beg to move.
§ Lord Benson
I support this amendment I should explain at the beginning that I have a minor conflict of interest in that this amendment affects professional bodies, including the accountancy bodies, and I am an accountant. However, I have no interest and take no part in investment business. The professions that I think are affected by the amendment are the account-ancy bodies, the Law Society, the chartered surveyors and actuaries. There may be others, but I imagine that their feelings are similar to those expressed by the noble Lord, Lord Hacking, and indeed to those which I hope to express myself.
I have no wish to repeat the arguments which the noble Lord, Lord Hacking, has just put forward, except to agree that all the arguments that were made by the Under-Secretary of State in another place for giving immunity to the SROs apply without reservation to the RPBs. I agree also that the only two arguments for making this discriminatory legislation which is now proposed do not hold any substance at all. I will not repeat all those, but I should like to make just one or two other comments. My own profession has made inquiries to see whether we can possibly get insurance to cover the claims that we are troubled about. Present indications are that insurance is not possible. What is very puzzling to us, as professionals, is that professions which have been in existence for over a hundred years are discriminated against and are not given immunity, whereas newly-formed SROs who have no track record of integrity at all are given immunity. That seems to me a monstrous anomaly.
The second point is that I think the Government may defeat their own purpose. They obviously want RPBs, because they make provision for them in the Bill. The present feeling in my profession is that our members will not apply for recognition, for the perfectly obvious reason that they do not want to saddle themselves with uninsurable risks. I make this point wth great strength. It should be remembered that we are professional people, and for that reason we have unlimited liability. These claims, if they were made, 769 would absorb the whole of our assets, if they were substantial.
There is one other point which troubles my profession very particularly; that is, that the DTI is our sponsoring body, which is expected to support us. In the many years I have been in contact with the DTI we have gallantly responded to any request made to us. It is very saddening—and I speak in moderate terms—to find that the department which ought to be sponsoring us and supporting us is introducing discriminatory legislation against us.
I hope, like the noble Lord, Lord Hacking, that this amendment will find favour with the Government. I am greatly encouraged on that because during the Second Reading debate the noble Lord, Lord Lucas of Chilworth, said at col. 655 of Hansard on 11th July 1986, that on this particular topic the door,is nominally ajar. If the matter would like to creep through one afternoon. 1 shall be happy to help".If the noble Lord, Lord Lucas, wishes us to creep, we will creep; but we would prefer to walk through as upright citizens. whatever method of locomotion is imposed upon us, we gladly welcome the help that the noble Lord, Lord Lucas, has offered to us, and we ask him to implement it.
§ 6.15 p.m.
§ Lord Chorley
At this stage there is little one can usefully add to what has already been said in support of the amendment. Not for the first time, I find myself in agreement with the noble Lord, Lord Benson. I should like to emphasise one point; but I first ought to declare an interest in that I am a practising accountant. As has been said, the basis of the Bill is one of self-regulation. Yet it is difficult to see how an RPB can be effective and exercise its functions properly unless the legislation accords the RPB protection from damages.
As the noble Lord, Lord Williams, I think it was, reminded us on Second Reading, we live now for better or worse in an increasingly litigious world, and it seems certain to me that an RPB will one day be sued, probably for a large sum of money. The result is clear. Either the membership, as the noble Lord, Lord Benson, said, will say, "No, we do not want to be a recognised body; it is far too risky and anyway it only concerns the periphery of our professional concerns", or the RPB will be so cautious as to be ineffective. Either way, the purpose of the legislation will be defeated. Even if insurance were available—and we are told it is not—it does not seem to me to be the right way to deal with the matter. I would suggest that immunity is not just a matter of equity but that it is also necessary to achieve effectiveness in the Bill.
During the Second Reading debate the noble Lord advanced, so far as I could see, only one argument, and an inadequate one at that. He said that the limited range and scale of investment business that the RPBs would regulate meant that they were less likely than recognised SROs to face a claim for damages. That might be the case, but surely the relevant factor here is not one of relativity but whether there is a significant risk of an RPB being sued for a large sum. I would submit that there is a significant risk. This is a most important matter and I hope the Government will respond suitably.
The Earl of Buckinghamshire
Perhaps I may say a few quick words in support of this amendment. I have been in discussion with the Institute of Chartered Accountants for Scotland, who are very concerned at the lack of legal immunity for the recognised professional bodies, and I am able to confirm and support the noble Lord, Lord Benson, in his views about the other institutes and faculties of actuaries, the Law Society and so on, who are equally concerned.
I should like to pose two questions to the Committee. First, is the amendment reasonable; and, secondly, what will happen if my noble friends in the Government do not accept the amendment? In regard to the first question, I have a number of points. First, I believe that the RPBs are reasonable in their request for immunity. The reasons are exactly the same as for the SROs, which, with their overwhelming reasons, gained that immunity in the first place. I cannot see why the RPBs are not so treated in the same manner. Sir Kenneth Berrill has asked for a level playing field, but the present proposals in this area are not level at all. While the scale of business in these areas may be small compared with other regulatory bodies, nevertheless possible claims arising out of the second part of the schedule can be quite large. In my own organisation, which employs actuaries, for instance, we carry several million pounds worth of professional indemnity insurance. We do not carry that lightly because it is a very high cost to us.
Perhaps I may now move on to the position if legal immunity is not granted to RPBs. It is difficult to predict the effects. To some extent the results may be slightly philosophical and subjective. It would, however, be a retrograde step if for instance the institutes and faculties felt unable to act as RPBs. This may in turn have a regressive effect on the members of the institute, who may become unwilling to offer advice in the areas of investment. Indeed, an element of competition in this area may well disappear if this occurs.
If a professional body obtains recognition for its members and if they wish to continue to offer investment advice, they may have to gain authorisation from a separate body. Thus the members will be subject to two regulators—the SROs for investment and their own body for the other parts of their business. I would hope that there would be no conflict of regulations if this were to happen. As with the SROs in their submissions to the Government, we may find that the officers and the elected council members of the various institutes will be reluctant to take part in this regulation without the immunity. The noble Lord, Lord Benson, has already outlined the difficulties of getting professional indemnity cover, and I am certainly able to confirm that from our point of view in this area. As the concept of immunity has been accepted in general, I cannot really understand why the concept should not be applied evenly across the board for the RPBs. The reasons given to date in another place and in correspondence to the Scottish Institute do not strike me as being very conclusive.
In conclusion, I hope that the Government will listen very carefully to the amendments proposed and view them favourably. I hope, like the noble lord, Lord Benson, that we do not creep through the door, but walk upright.
§ Lord Ezra
Perhaps I may briefly intervene as someone who has no interest to declare in the matter, not being a member of any of the professional organisations concerned. But I should like to say in that objective capacity that I have found the arguments in favour of this amendment very convincing. I think that it would be to the detriment of the smooth operation of this legislation if that omission in the matter of immunity were made. In seeking the adequate protection of investors we need to have the full support of all the bodies which will have to apply this law. In order to get that support all must be treated alike.
What particularly convinced me in the remarks of the noble Lord, Lord Benson, was that they had made inquiries about the possibility of obtaining insurance but this was not forthcoming. It seems therefore as if the insurance industry feels that the risks are very considerable if immunity is not granted, even though, as I understand it, the Government have said in another place that they do not consider these risks to be very great. I very much hope, therefore, that the door, which I gather from the previous remarks of the noble Lord, Lord Lucas, might be slightly ajar, can be pushed a little wider as a result of this discussion.
§ Lord Tryon
I, too, am neither a lawyer nor an accountant. Indeed, when I first saw this amendment I started off somewhat suspicious of it and almost prejudiced against it—prejudiced because I so dislike the letter that company directors usually have to sign at the end of the financial year nowadays, whitewashing accountants from virtually any responsibility at all in order to get them to produce the accounts. I thought that this was a continuation of the same sort of theme. But having talked around various practitioners, I am convinced that it is a sensible amendment, and I shall support it.
§ Lord Lucas of Chilworth
With noble Lords from all sides of the Chamber speaking in favour of the amendment of the noble Lord, Lord Hacking, I may find it rather difficult, but I want to put to the Committee as a whole one or two points.
Certainly when this matter was discussed in another place my honourable friend said that we start from the presumption that regulators should be liable for their actions and that it is for those who seek immunity to make the case for it. On the balance of the arguments that have been put to us thus far we have come to the view that immunity would be appropriate for recognised self-regulating organisations, for reasons which I think will be familiar to the Committee and which have, broadly speaking, been outlined by the noble Lord, Lord Hacking. But in this area, as in others, we have to consider very carefully whether what is right for an SRO is also right for a recognised professional body, given the differences between them—and there are differences between them.
It has always been clear that recognised professional bodies are only intended to regulate business of a limited range and scale. That is how we started our conversations with them and that is exactly how those conversations have gone on. We concluded that, given the scale and nature of investment business likely to be regulated by recognised professional bodies, it was 772 unlikely that the circumstances would arise in which the exercise of a direct rule-changing power by the Secretary of State or designated agency was necessary to protect investors, and we therefore decided not to include such a provision in the Bill. Similarly, in deciding whether to extend immunity to such bodies we have had regard both to the scale and nature of the investment business they are likely to regulate and to their existing position as regards liability.
In the case of an RSRO we were concerned that the possibility of a number of large claims against an organisation might well deter it from taking actions and might also, as we have heard, deter people from serving on its governing body or working for it. It seems to us that different considerations apply in the case of a recognised professional body. The prime purpose of such bodies will continue to be the regulation of their own profession. In some cases, as with the Law Society, this would be a statutory function. In others, such as the Institute of Chartered Accountants, the statutory link will be that membership of the body is required in order to be able to undertake particular functions.
But in either case it is possible to conceive of action being taken by someone aggrieved at a decision of the body. For instance, a person who had lost money as a result of a negligent audit might sue the Institute of Chartered Accountants on the grounds that the institute should have known of its member's negligence and expelled him; and that had he been expelled he would not have been able to carry out the audit. Similarly, a member who had been wrongly expelled might sue the institute for his lost income as an auditor. Yet that existing potential liability to damage apparently has not deterred the existing professional bodies from carrying out their existing functions; nor does it deter individuals from becoming involved.
It is against that background that we must consider whether the additional potential liability to which recognised professional bodies would be subject in their regulation of investment business under the Bill would justify exemption from liability in that aspect only of their activities. We have concluded that it would not, for two reasons. The first illustrates the fundamental difference. Noble Lords who have spoken in favour of the amendment have suggested that there is no difference between a SRO and a RPB. I am suggesting to the Committee that there are fundamental differences, and I should like to outline them.
First, the investment business regulated by such bodies will be only a relatively small part of the business of their members. It is surely more probable that a major claim against a recognised professional body will arise in connection with its regulation of its members' main activity rather than their incidental activities. Since no immunity has been found to be necessary in respect of the main activity, I suggest to the Committee that it is difficult to justify indemnity in respect of incidental activities.
Secondly, the nature and the scale of investment business regulated by the RPBs will be such that large claims against such bodies will of their nature be less likely. That is not to say that the sums involved when a person certified by a recognised professional body 773 engages in investment business will necessarily be small. For instance, where an accountant is giving investment advice, in certain circumstances many millions of pounds could hang on the quality of that advice. In those circumstances an aggrieved client could claim only against the recognised professional body if both his adviser and the body itself had been negligent. The likelihood of such a case succeeding seems to us to be remote.
The difference here between a recognised self-regulating organisation and a recognised professional body is that the nature of the investment business regulated by the latter—certainly in the example of investment advice that I have quoted—is of itself such that a large claim against the regulator would be less likely to be pursued and to succeed than, for instance, a claim in respect of the collapse of a market maker.
§ Lord Lucas of Chilworth
Perhaps I may just finish my argument. The fact that a recognised professional body will not have immunity will no doubt affect the kind of business in which it decides to engage. I have sought to suggest that most of the business is incidental. If a member of an organisation wishes to engage in a different area of business as a main activity or as a principle activity, it will be up to that company to seek the immunity that is open to it.
The noble Lord, Lord Hacking, suggested that the RPB's immunity might if granted be limited to immunity against a member. But are RPBs primarily concerned about suits brought against them by members? If they are, I suggest in all humility that there is a remedy in their own hands. There is nothing to prevent a recognised professional body from including in its own constitution a provision binding members not to sue their professional body. That would not of course protect the RPB against claims by investors. However, the comment of the noble Lord, Lord Hacking, suggested to me that RPBs are less concerned about claims by investors and more about claims brought by their own members. I suggest that the noble Lord carefully considers whether my proposal would not adequately meet that part of his argument.
I indicated that RPBs would be regulating a narrower range of investment business, and on a more restricted scale, than the SROs. It is for that reason that I have not found the arguments put to me this afternoon sufficiently persuasive to make me believe that we should alter our current view.
§ Lord Diamond
I, too, belong to the Institute of Chartered Accountants, but I have not practised since 1963 and I have had no financial interest in the profession since then. I was waiting to hear what the Minister had to say, to find out whether there was a single, solid argument against the amendment. I must say that I have not heard one.
The main argument that the Minister proposes is the argument of scale, which does not appeal to any Members of the Committee who are concerned with the principle of the matter. As to the argument of scale, I ask the Minister whether the Government 774 propose on Report to introduce an amendment on their own intitiative, saying that if, against the RPB's expectations, damages are awarded in excess of £X, the body in question will be indemnified in respect of that excess. Of course they are not saying that. When there is a question of principle, one decides it as a matter of principle and not on the basis of scale. The fact that the maidservant's baby is only a very little one is a point that has been made many times before.
I am bound to say that a number of important and substantial points have been made in favour of the amendment but that I have heard none against it. I can well understand the desire of the Government not to push forward the boundaries of indemnity unnecessarily. That is why they hesitated for a long time to introduce indemnity for the SROs. However, by introducing this legislation the Government are in effect asking members of the SROs to undertake special responsibilities, and they have now decided to grant them immunity. The Government are in the same way asking members of recognised professional bodies to undertake a similar task. It is an exactly parallel task. It is in order to give effect to the Government's own legislation, to make it work, and therefore the same argument applies that there should be equal immunity for performing the same task and for putting oneself in the same kind of difficulty.
The public are protected by the reference to not acting in bad faith, and so the Government are protected in that respect. I myself do not know what those who moved this amendment propose to do, but I hope very much that they will pursue it fully.
§ Baroness Seear
This is not a field in which I can claim any expertise, but I wish to put on the record a protest against the last argument that the Minister used, when he suggested that a professional body should make it a condition that members should not exercise the very proper right of suing if they are in a situation in which they need to sue. That seems a totally improper suggestion from a representative of Her Majesty's Government.
§ Lord Lucas of Chilworth
I should like to answer the noble Lord, Lord Diamond. However before so doing perhaps I may say to the noble Baroness, Lady Seear, that she might find my suggestion, phrased as it was, improper but, in fact, this amendment seeks to do precisely that which I have suggested, though by a different route. I pick up only one point made by the noble Lord, Lord Diamond, towards the end of his remarks. It is only right that the same protection should be afforded for the same task, but the tasks are totally and absolutely different.
§ Lord Benson
May I draw the attention of the noble Lord, Lord Lucas, to two points? As I understood his reply, the main point was that the RPBs will undertake a narrower range of business. That can be put into perspective perfectly simply in this way. If a motor driver goes on to the streets and has an unfortunate accident a claim against him would be just as great whether he drives the car once a day or five times a day. The cause of action is the same and the claims will be just as heavy.
775 The second point which the noble Lord has not answered is how he is to implement the help he undertook to give us to "creep through" this afternoon.
§ The Earl of Limerick
Before the movers of this amendment dispose of it, I should like to pose one question. I speak in a slightly schizophrenic frame of mind, in that I have, so to speak, half an interest. For a brief period I was a practising accountant, but I ceased doing that in 1958, even longer ago than the noble Lord, Lord Diamond.
If the amendment were accepted and the principle enshrined in statute that there should be immunity from prosecution for the professional bodies in this manner, on the next time round, where will the line be drawn? There are other statutory duties imposed on professional bodies. I have in mind audits under the Companies Act, duties of reporting accountants in relation to prospectuses, and so on.
I am not clear what are the views of the movers of this amendment on that question. If the principle were accepted that professional bodies should have immunity in relation to those statutory duties, why should one think that they should not be likewise relieved from responsibility in relation to any other statutory duties that may be imposed on them?
§ Lord Hacking
Perhaps I may reply immediately to the noble Earl, Lord Limerick. The line that the noble Lord, Lord Benson, and I are seeking in tabling this amendment is that contained in the provisions of this Bill. There are three administrators—to use my own terminology—for the enforcement of his Bill. Those three adminstrators are treated differently. All I am seeking is that in administering the many and diverse tasks that fall upon the SIB, the SROs and the RPBs—within the framework of this Bill and within their responsibilities—should be treated alike and should have the same level of immunity. With respect to the noble Earl I do not think we need to consider the wide range of statutory duties that fall on a conglomerate of organisations and bodies throughout the land. We can, I believe discipline ourselves to considering what is the position under this provision as presented to the Committee.
I regret to say' that I remain dissatisfied with the response of the noble Lord the Minister. I am extremely grateful to members on all sides of the Committee who have spoken in favour of this amendment. In referring to all sides of this Committee I see that the noble Lord, Lord Williams, is looking at me with a careful glaze. I must express a little disappointment, therefore, that no voice came from the Front Bench upon which the noble Lords, Lord Williams, and Lord Silkin sit. I am disappointed because this amendment was originally tabled by a worthy member of that Front Bench—the noble Lord, Lord Bruce of Donington. I was only, so to speak, the seconder of the amendment and somehow the name of the noble Lord, Lord Bruce of Donington, disappeared from the Marshalled List and I found myself heading the brigade on this amendment and not just the seconder of it. Is the noble Lord, Lord Williams, at long last, wishing to participate?
§ Lord Williams of Elvel
I hope the noble Lord is not trying to make mischief between my noble friend Lord Bruce of Donington and myself.
§ Lord Hacking
I would not dare. The second reason I am disappointed that there were no speeches from the Front Bench of the noble Lord, Lord Williams, is because when I was giving support to an amendment moved by the noble and learned Lord, Lord Silkin, which I felt should be given consideration I suggested that this limit on immunity might be considered in relation to RPBs. It would therefore have been helpful if we could have had some response on that point. Despite the absence of that support your Lordships have made it plain that there is support for this amendment from all quarters of the Committee.
The noble Lord the Minister made some points on how, for example, members of RPBs could be put under some obligation of not seeking immunity against their governing society. There are two difficulties about that. There is, first, the difficulty of impropriety, as remarked upon by the noble Baroness Lady Sear. Secondly, there is the practical difficulty. Certainly concerning the Law Society, there is no obligation to become a member of the Law Society. However, under the effective powers that would have to be regulated by the Law Society under this Bill all persons who practise as solicitors would fall under the ambit of its responsibilities. Therefore, that was not a satisfactory answer from the Minister.
The noble Lord the Minister also produced another argument that under the present administration of their duties the Law Society, the Institute of Chartered Accountants, and so on, do not have immunity, so why do they need it now? The answer simply lies under the responsibilities—and the exposure resulting from those responsibilities—which will be imposed on them if they seek to take the status of an RPB.
As was pointed out by the noble Lord, Lord Diamond, the Government argument rests on that of scale. In my submission, that is unsatisfactory. It is not an argument of principle but only that "these claims will not be big and they do not need immunity". That is wholly judgmental, and being judgmental it is an unsatisfactory answer.
I believe that our discussions were clearly and accurately focused upon by the comments made by the noble Lord, Lord Ezra. He said that there is need for support from all the principal bodies which will be participating to make this Bill and its provisions work. These are the three authorised bodies or administrators—the SIB, the SROs (principally the Stock Exchange), and the RPBs. Equal treatment should be given to those from whom equal co-operation is being sought. Otherwise the regrettable situation will arise in which certain bodies which would normally come forward to operate as RPBs and make this Bill work will desist from doing so. That will defeat the overall purpose of this Government, which is to make the Bill work and work in all quarters.
It is rare that I seek to divide the Committee, but it is my intention to do so now.
§ 6.49 p.m.
§ On Question, Whether the said amendment (No. 358) shall be agreed to?
§ Their Lordships divided: Contents, 55; Not- Contents, 102.
|Addington, L.||McNair, L.|
|Ailesbury, M.||Masham of Ilton, B.|
|Airedale, L.||Milne. L.|
|Aldenham, L.||Munster, E.|
|Aylestone, L.||Northfield, L.|
|Beaumont of Whitley, L.||Pitt of Hampstead, L.|
|Benson. L. [Teller.]||Ritchie of Dundee, L.|
|Caccia, L.||Roberthall, L.|
|Carnock, L.||Robson of Kiddington, B.|
|Chorley, L.||Rochester. L.|
|Craigavon, V.||St. Davids, V.|
|Diamond, L.||Seear, B.|
|Ezra, L.||Seebohm, L.|
|Grey, E.||Shackleton, L.|
|Hacking. L,. [Teller.]||Shannon, E.|
|Hampton, L.||Stedman, B.|
|Hanworth, V.||Taylor of Gryfe, L.|
|Heycock, L.||Taylor of Mansfield, L.|
|Houghton of Sowerby, L.||Tordoff, L.|
|Hylton-Foster, B.||Tryon, L.|
|Kagan, L.||Walston, L.|
|Kearton, L.||Whaddon, L.|
|Kilbracken, L.||Wilberforce, L.|
|Kilmarnock, L.||Wilson of Rievaulx, L.|
|Kinloss, Ly.||Winterbottom, L.|
|Kirkhill, L.||Wrenbury, L.|
|Lloyd of Kilgerran, L.||Ypres, E.|
|Allerton, L.||Greenway, L.|
|Ampthill, L.||Halsbury, E.|
|Ashbourne, L.||Hanson, L.|
|Auckland, L.||Harmar-Nicholls, L.|
|Belhaven and Stenton, L.||Henderson of Brompton, L.|
|Beloff, L.||Henley, L.|
|Belstead, L.||Hives, L.|
|Blake, L.||Holderness, L.|
|Boyd-Carpenter, L.||Hooper, B.|
|Brabazon of Tara, L.||Killearn, L.|
|Brougham and Vaux, L.||Kimball, L.|
|Butterworth, L.||Kitchener, E.|
|Caithness, E.||Knollys, V.|
|Campbell of Alloway, L.||Lane-Fox, B.|
|Campbell of Croy, L.||Lauderdale, E.|
|Carnegy of Lour, B.||Layton, L.|
|Colwyn, L.||Long, V.|
|Constantine of Stanmore, L.||Lucas of Chilworth, L.|
|Cork and Orrery, E.||McFadzean, L.|
|Craigmyle, L.||Macleod of Borve, B.|
|Crathorne, L.||Malmesbury, E.|
|Cross, V.||Mancroft, L.|
|Cullen of Ashbourne, L.||Margadale, L.|
|Davidson, V.||Marshall of Leeds, L.|
|De La Warr, E.||Massereene and Ferrard, V.|
|Denham, L. [Teller.]||Maude of Stratford-upon-|
|Dilhorne, V.||Avon, L.|
|Drumalbyn, L.||Merrivale, L.|
|Eden of Winton, L.||Middleton, L.|
|Elliot of Harwood, B.||Milverton, L.|
|Elliott of Morpeth, L.||Mottistone, L.|
|Elton, L.||Mountevans, L.|
|Enniskillen, E.||Murton of Lindisfarne, L.|
|Faithfull, B.||Norfolk, D.|
|Ferrers, E.||Northesk, E.|
|Fraser of Kilmorack, L.||Orr-Ewing, L.|
|Gardner of Parkes, B.||Penrhyn, L.|
|Glanusk, L.||Peyton of Yeovil, L.|
|Gray of Contin, L.||Platt of Writtle, B.|
|Quinton, L.||Sudeley, L.|
|Radnor, E.||Swinton, E. [Teller.]|
|Rankeillour, L.||Teviot, L.|
|Reigate, L.||Thorneycroft, L.|
|Rochdale, V.||Trenchard, V.|
|Rodney, L.||Trumpington, B.|
|Romney, E.||Ullswater, V.|
|Saint Oswald, L.||Vivian, L.|
|Sharpies, B.||Westbury, L.|
|Skelmersdale, L.||Wynford, L.|
|Stanley of Alderley, L.||Young. B.|
|Stodart of Leaston, L.||Zouche of Haryngworth, L.|
|Strathcona and Mount Royal.|
§ 6.57 p.m.
§ [Amendments Nos. 359 and 360 not moved. ]
§ Lord Brabazon of Tara moved Amendment No. 361:
Page 127, line 8, after ("Schedule 2") insert ("paragraph 4(5) of Schedule (Requirements for recognition of professional body)").
§ The noble Lord said: I beg to move. This amendment was spoken to with Amendment No. 79.
§ Lord Brabazon of Tara moved Amendment No. 362:
Page 127, line 8, leave out ("and") and insert ("or").
§ The noble Lord said: This is a purely drafting amendment. I beg to move.
§ [Amendment No. 362A not moved. ]
§ Clause 156, as amended, agreed to.
§ Clauses 157 and 158 agreed to.
§ Schedule 12 [Restriction of Rehabilitation of Offenders Act 1974]:
§ Lord Brabazon of Tara moved Amendments Nos. 363 to 366:
Page 202, line 2, after ("organisation") insert ("or body").
Page 202. line 3, at end insert—
("(2A) Any proceedings with respect to a decision or proposed decision of a recognised professional body refusing, suspending or withdrawing a certificate issued for the purposes of Part I of this Act.")
|Page 203. line 13, at end insert— ("(2A) A recognised professional body.||(a) A person certified by the body.|
|(b)An applicant for certification by the body.|
|(c) A person whose certification by the body is suspended.|
|(d) An individual who is an associate of a person (whether or not an individual) described in paragraph (a), (b) or (c) above.")|
Page 203, line 16, column 1, leave out ("or paragraph 2(b) or (c) above") and insert (", paragraph 2(a), (b) or (c) or paragraph 2A(a), (b) or (c) above").
§ The noble Lord said: I beg to move Amendment No. 363 and, with the leave of the Committee Amendments Nos. 364, 365 and 366, all of which have been spoken to with Amendment No. 79.779
§ 7 p.m.
§ Lord Ezra moved Amendment No. 366A:
|Page 203, line 41, at end insert— ("8. An approved exchange||An individual who is or is seeking to become an associate of the issuer of securities on an approved exchange and from or in respect of whom information is sought which the issuer of the securities is required to furnish under the rules of the approved exchange.").|
§ The noble Lord said: The amendment relates to the restriction of certain clauses in the Rehabilitation of Offenders Act 1974 to give better protection to investors under the present Bill. This matter is dealt with in Clause 158 and in greater detail in Schedule 12. The amendment relates to Schedule 12.
§ Under the Bill as at present drafted, the exclusions from the relevant provisions of the Rehabilitation of Offenders Act are allowed for authorising organisations when considering whether the principals of businesses that undertake investment activities seeking authorisation are fit and proper to do so. A similar exclusion allows the competent authority for listing—that is, the Stock Exchange Council—to ask questions of potential directors of listed companies about certain previous convictions and if appropriate to act on such information.
§ Clearly, the inquiries which the authorised organisations are empowered to make are in the interest of investor protection. However, in the case of the Stock Exchange, the wording of the Bill is such as to exclude it from being able to ask similar questions of potential or new directors of companies on the unlisted securities market. It is only in respect of the listed market that it can make those inquiries. That seems to be a gap. It is possibly unintentional. I should remind the Committee that the USM is a fast growing market. It is one in which smaller and less well-known companies happen to operate. Therefore, there seems to be all the more reason that careful inquiries of actual or potential investors should be made. The purpose of the amendment is simple. It is an attempt to close that gap. I beg to move.
§ Lord Lucas of Chilworth
I am most grateful to the noble Lord, Lord Ezra, for so carefully explaining the purpose of his amendment. I am afraid that I shall have to resist it. It is not difficult to set out why, although perhaps not as consistently as one would wish.
My honourable friend the Minister in another place, when he spoke about the amendments to be made to the Rehabilitation of Offenders Act in this Bill, said that there was a balance to strike between the need to protect investors by ensuring that responsible authorities were fully aware of the relevant previous convictions of applicants and could take them into account, and the need to maintain important rights granted by Parliament under other legislation.
This delicate balance is not an easy one to achieve but I believe, as did my honourable friend, that the provision as drafted achieves it. The clause restricts the workings of the Rehabilitation of Offenders Act in so far as it relates to crimes of fraud and dishonesty or under specified statutes, committed by those in senior 780 positions in authorised businesses and companies listed or applying for admission to the official list, which carries a special status, not least in the eyes of investors. Listed companies have long had a special status under our laws, and indeed under EC law, and it is therefore right to apply stricter safeguards to the vetting of their associates. The complexity of the provision indicates the care with which it has been focused. I recognise the concerns which the Stock Exchange has expressed to the noble Lord, Lord Ezra, but I would suggest to him that his proposed amendment goes too far in disturbing the balance. The proposed extension of the disapplication would not be confined just to applicants for admission to the unlisted securities market but would apply to applicants to all approved exchanges, so the effect of the amendment would be to deprive more individuals of their rights conferred by statute.
I think also that it would be difficult to distinguish between approved exchanges and other recognised investment exchanges. The main differences between approved exchanges and other RIEs is that an approved exchange may be allowed to substitute its own disclosure requirements for those to be laid down by the Government under Part V of the Bill. This is not a good reason for distinguishing between approved and other recognised exchanges for the purposes of this restriction.
The Rehabilitation of Offenders Act contains its own safeguards even without this amendment. Convictions do not become spent until substantial prescribed periods have elapsed. Where a conviction results in a custodial sentence in excess of 30 months, it never becomes spent nor will any other subsequent convictions. The Act also provides that, in any proceedings before a judicial authority, evidence relating to spent convictions may be admitted and required if the authority is satisfied that justice cannot otherwise be done. The Stock Exchange, for example, in deciding whether to admit a company to listing on the USM, would be covered in this way. So in appropriate circumstances convictions outside the specific disapplication can still be taken into account. I believe that this is sufficient for the proper operation of approved exchanges.
A further extension of the present provision in the Bill would run counter to the purposes of the Rehabilitation of Offenders Act 1974 by which Parliament gave rights to individuals which should, so far as possible, be left intact. Whenever one strikes a balance—in this case between the needs of regulators and the rights of the individual—one may be accused of drawing the line in the wrong place. I believe that the way in which this provision has been framed is correct and that the balance is right. I hope the noble Lord will agree and feel able to withdraw his amendment.
§ Lord Ezra
I am grateful to the noble Lord for the explanation that he gave of the Government's position. I sympathise with the Government's desire to ensure that there should not be too many limitations on the operation of the Rehabilitation of Offenders Act 1974. Nevertheless, I believe that they are drawing a false distinction between the listed and the unlisted securities market. They are close to each other these 781 days. They are listed in the financial press and their shares are freely traded, so that the risks to the investor are equal.
I should have hoped that even if the Government were not disposed to accept the wording of my amendment they would have been prepared to consider the point and introduce the USM in some other way. As it is, I do not wish to press the amendment, but I shall have a look at the matter again and possibly bring it back at a later stage. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
Lord Brabazon of Tara moved Amendment No. 367:
Page 204, line 4, column 1, leave out ("or paragraph 2(b) or (c)") and insert (", paragraph 2(a), (b) or (c) or paragraph 2A(a), (b) or (c) ").
§ The noble Lord said: This amendment was spoken to with Amendment No. 79. I beg to move.
Lord Brabazon of Tara moved Amendment No. 368:
Page 204. line 23. leave out ("or membership") and insert (" . membership or certification").
§ Clause 159 [Occupational pension schemes]:
§ On Question, Whether Clause 159 shall stand part of the Bill?
§ Lord Lucas of Chilworth
I move that the clause does not stand part of the Bill, because I wish to introduce a new clause which is the subject of Amendment No. 369. It may be for the convenience of the Committee if I speak to it now.
The amendment reflects the result of consultations on the Bill's provisions in relation to occupational pension schemes. The reference in the existing Clause 159 to management through an authorised person has caused some uncertainty. Some have questioned the position of trustees of occupational pension schemes. The new clause clarifies the requirement to be authorised. A person such as a trustee who is responsible for the management of the assets of an occupational pension scheme will not be required to be authorised if he delegates day-to-day management of those assets to an authorised or exempted person. This does not mean that he would have to distance himself entirely from the management of the assets. He would still be able to take what might be called strategic decisions, for example, about the proportion of the assets that should constitute investments of particular kinds or the desired balance between growth and income, and indeed his responsibilities as a trustee might require him to do so.
Similarly, a trustee would not need to be authorised simply because the person managing the scheme's assets was required to consult him from time to time 782 in particular circumstances—where perhaps there was a take-over bid, where perhaps the manager had a conflict of interest, or where the transaction in question was particularly large. But a trustee would be required to be authorised if he regularly exercised discretion as to the sale or purchase of particular investments. The new clause also makes clear that the requirement to be authorised in subsection (1) overrides where necessary the exclusion for trustees in paragraph 20 of Schedule 1. If a trustee actively manages the assets of the pension scheme, he will have to be authorised even if he satisfies the conditions set out in paragraph 20. Subsection (3) allows the Secretary of State to exclude certain managers of certain types of occupational pension schemes from the scope of subsection (1) and hence from the requirement to be authorised.
It has been suggested to us, particularly in the context of small, self-administered, pension schemes, approved by the Inland Revenue, that the provisions of the clause are inappropriate to some types of small schemes because they are effectively under the control of beneficiaries. I am not able at this stage to say precisely which classes of scheme would be excluded under this provision. But, clearly, approved, small, self-administered schemes are strong contenders, although the Government will wish to consider carefully whether all such schemes or only classes of them should be excluded.
We should also want to consider whether the pensioner trustees of such schemes should continue to be required to be authorised. There may also be other classes of scheme in respect of which the power should be exercised. I should like to stress that my right honourable friend the Secretary of State for Social Services will need to consider carefully whether a scheme that is not managed by an authorised or exempted person should be able to contract out of the state earning-related pension scheme under the new arrangements to be introduced under the Social Security Bill. That is the purpose of the new clause. I beg to move.
§ Lord Williams of Elvel
I am sure that the Committee is grateful to the noble Lord, Lord Lucas, for his exposition of the new clause. It raises, as I am sure he realises, and as I think he mentioned, a number of extremely complex issues. Indeed, the noble Lord has himself identified a certain number of issues where the clause is, if I may say so, incomplete, or at least the explanation is incomplete, because there is still the question of which schemes will be excluded and whether pensioner trustees will be in or out of authorisation. So we have to wait and see what the Government finally intend before discussing this new clause as fully as we should like.
If, however, I may put down a marker, it is extremely difficult to determine—I speak as one who in the past has been a trustee and a manager of pension funds—exactly at what point the trustee ceases to have decision-making powers over individual investments or a series of investments and at what point the manager takes over discretion. This is an area where we shall have some interesting debates at a later stage of the Bill.
§ On Question, clause negatived.783
§ Lord Lucas of Chilworth moved Amendment No. 369:
§ After Clause 159, insert the following new clause:
§ ("Occupational pension schemes.
- .—(1) Subject to the provisions of this section, a person shall be treated for the purposes of this Act as carrying on investment business if, whether or not by way of business, he engages in the activity of management falling within paragraph 14 of Schedule 1 to this Act in a case where the assets referred to in that paragraph are held for the purposes of an occupational pension scheme.
- (2) Subsection (1) above does not apply where all decisions, or all day to day decisions, in the carrying on of that activity are taken on behalf of the person concerned by—
- (a) an authorised person; or
- (b) an exempted person who in doing so is acting in the course of the business in respect of which he is exempt.
- (3) The Secretary of State may by order direct that a person of such description as is specified in the order shall not by virtue of carrying on the activity mentioned in subsection (1) above otherwise than by way of business be regarded for the purposes of this Act as carrying on investment business where the assets are held for the purposes of an occupational pension scheme of such description as is so specified, being a scheme in the case of which it appears to the Secretary of State that management by an authorised or exempted person is unnecessary having regard to the size of the scheme and the control exercisable over its affairs by the beneficiaries.
- (4) An order under subsection (3) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.
- (5) For the purposes of subsection (1) above in its application to a person carrying on the activity there mentioned otherwise than by way of business paragraph 14 of Schedule 1 to this Act shall be construed without reference to paragraph 20 of that Schedule.").
§ 7.15 p.m.
§ Clause 160 [International obligations]:
§ Lord Brabazon of Tara moved Amendment No. 370:
§ Page 129, line 23, at end insert—
§ ("() Subsection (1) above applies also to an approved exchange within the meaning of Part V of this Act in respect of any action which it proposes to take or has power to take in respect of rules applying to a prospectus by virtue of a direction under section 134(3) above.").
§ The noble Lord said: This amendment was spoken to with Amendment No. 310. I beg to move.
§ Clause 160, as amended, agreed to.
§ Clause 161 [Exemption from Banking Act 1979]:
§ Lord Lucas of Chilworth moved Amendment No. 371:
§ Page 129, line 39, leave out from ("authorised") to end of line 40 and insert ("or exempted person in the course or for the purpose of engaging in any activity falling within paragraph 12 of Schedule 1 to this Act with or on behalf of the person by whom or on whose behalf the deposit is made or any activity falling within paragraph 13, 14 or 16 of that Schedule on behalf of that person.
§ (2) Subsection (1) above applies to an exempted person only if the activity is one in respect of which he is exempt; and for the purposes of that subsection the paragraphs of Schedule 1 there mentioned shall be construed without reference to Parts HI and IV of that Schedule.
§ (3) This section is without prejudice to any exemption from the said Act of 1979 which applies to an authorised or exempted person apart from this section.").784
§ The noble Lord said: This is a very technical amendment. But it is clearly essential that where the carrying on of investment business necessarily involves what, given a very broad definition in the Banking Act, must also be regarded as the acceptance of a deposit, then it must be the regime to be introduced under the Bill and not the inappropriate regime of the Banking Act that applies. The clause, as originally drafted, arguably went too wide. It could have permitted authorised persons to finance their businesses by means of an otherwise unconnected deposit-taking business without seeking a proper authority under the Banking Act. While it would have been possible to deal with the matter in the rules governing authorised persons, we think that it would be preferable to limit the exemption from the Banking Act on the face of the Bill. That is the first object of the amendment.
§ The second object is to ensure that exempted persons, who will need to accept deposits for the same reasons as authorised persons, will also have the benefit of similar exemption from the Banking Act. I beg to move.
§ Lord Williams of Elvel
As the noble Lord says, this is an extremely complex and technical question. I spent most of the weekend trying to understand previous clauses and I have not got around, I am afraid, to understanding what this amendment means. I am afraid that I shall need some time. While we do not oppose the amendment, we may wish to raise the matter on Report.
§ Clause 161, as amended, agreed to.
§ Clauses 162 and 163 agreed to.
§ Clause 164 [Financial assistance for employees' share schemes]:
§ Lord Hacking moved Amendment No. 372:
§ Page 133, line 8, leave out ("ordinary") and insert ("the").
§ The noble Lord said: Unlike the last amendment moved by the Minister, this is a very simple amendment and one, I believe, wholly within the comprehension of the noble Lord, Lord Williams, even if he has not done his homework. I do not say that unkindly. It would be almost impossible for any of your Lordships in Committee wholly to have done his homework on such a long and complicated Bill. It was not a point of criticism; it was a point of sympathy with the noble Lord, Lord Williams.
I now turn to my amendment. As the Committee can see, I am seeking, in reference to voting rights attributable to share capital, to have the word "ordinary" removed and replaced by the word "the". Clause 164 inserts a new provision in the Companies Act 1985 which will enable a company to give financial assistance,
for the purpose of enabling or facilitating transactions in shares … between or for the benefit of
bona fide employees and their dependants. It also enables employees connected with the company whose shares are involved to take steps to enable or facilitate the same transactions. In subsection (3), at the top of page 133 of the Bill, the definition of the expression "connected" refers to the right to,
control the exercise of a majority of the voting rights attributable to ordinary share capital which are exercisable in all circumstances at any general meeting of the other company or of its holding company".
§ However, in addition to equity share capital there can also be preference shares which carry voting rights in all circumstances. By changing the wording in the Bill from "ordinary" to "the", one covers all share capital where there are voting rights. I hope that I have been able to explain this amendment, and I hope that it is within the comprehension of all noble Lords in this Committee. I also hope that it will be accepted by the Government.
§ Lord Williams of Elvel
I am most grateful to the noble Lord, Lord Hacking, for explaining to my extremely stupid mind his very simple amendment with such great brilliance and intellectual distinction. However, it seems to me that "ordinary share capital" meets the bill because, as I understand it, employee share schemes are those concerned with ordinary share capital. It is perfectly possible that the noble Lord, Lord Hacking, may be right and that future share schemes may involve preference capital, convertible voting preferred, ordinary redeemable voting convertible preferred, or anything else. It may therefore be that the noble Lord, Lord Hacking, has a point, but it does not seem that under present legislation he has. It may be that, again, I have misunderstood, in which case I shall leave the Minister to reply.
§ Lord Lucas of Chilworth
One always has a feeling on Tuesday evening about twenty-two or twenty-three minutes past seven that noble Lords' minds are perhaps thinking of looking after the inner man after several hours of deliberation. I think that the noble Lord, Lord Hacking, explained this very well. However, I fear we are not satisfied that as it stands subsection (2) achieves the desired effect. We think that it contains a potential loophole which could allow companies to provide financial assistance for purposes other than the acquisition of beneficial ownership of shares in the company. We intend to close that loophole because we believe that this is an important provision. It is sufficiently important that we should make efforts to get it right. We intend to close that loophole but it has not been possible to produce a suitable amendment for consideration by the Committee. We shall wish to bring forward something ourselves on Report.
Against that background, may I make a suggestion to the noble Lord, Lord Hacking? I am not totally persuaded that we should adopt his proposed amendment. However, if he will agree to withdraw it we shall certainly undertake to consider the underlying point, in consultation with the Law Society, and, if appropriate, we can bring forward a suitable amendment on Report at the same time as we do with subsection (2). I hope that that course of action will commend itself to the noble Lord and to the Committee.
§ Lord Hacking
I am very grateful for the bouquet that the noble Lord, Lord Williams, has extended to me even if it had one or two thorns in it. I am also most grateful to the Minister for the response he has made to my amendment. On the basis that he has put the position of the Government, I am only too happy to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 164 agreed to.
§ Clause 165 [Disclosure of interests in shares: interests held by market maker]:
§ Lord Brabazon of Tara moved Amendment No. 373:
§ Page 133, line 25, after ("exchange") insert ("other than an overseas investment exchange").
§ The noble Lord said: This amendment was spoken to with Amendment No. 111. I beg to move.
§ Lord Hacking moved Amendment No. 374:
§ Page 133, line 27, leave out ("a price") and insert ("prices").
§ The noble Lord said: I spoke to this amendment when I spoke to Amendment No. 344AA at a much earlier stage this afternoon in Committee. I am hopeful that the Government will accept this amendment because they were kind enough to accept Amendment No. 344AA. In that case I do not desire to say anything further to the Committee. 1 beg to move.
§ Lord Brabazon of Tara moved amendment No. 375:
Page 134, line 6, after ("exchange") insert ("other than an overseas investment exchange").
§ The noble Lord said: This amendment was spoken to with Amendment No. 111. I beg to move.
§ Lord Hacking moved Amendment No. 375A:
Page 134, line 8, leave out ("a price") and insert ("prices").
§ The noble Lord said: As I understand it, the Government are also prepared to accept this amendment. I beg to move.
§ Lord Brabazon of Tara moved Amendment No. 376:
§ Page 134, line 11, at end insert—
§ ("and an interest of such a person in shares is an exempt interest if he carries on business as a market maker in the United Kingdom, is subject to such rules in the carrying on of that business and holds the interest for the purposes of that business.".").
§ The noble Lord said: I beg to move Amendment No. 376. This is a technical amendment an amendment was introduced in another place to provide a definition of the exempt interests of recognised market-makers which will not be notifiable under Sections 198-210 of the 1985 Companies Act, but the corresponding provision for Northern Ireland was unfortunately omitted. This amendment makes good that omission. I beg to move.787
§ Lord Williams of Elvel
Why was the Northern Ireland provision omitted? I do not quite understand how this could happen.
§ Clause 165, as amended, agreed to.
§ Lord Brabazon of Tara moved Amendment No. 377:
§ After Clause 165, insert the following new clause:
§ ("Power to petition for winding up or administration order on information obtained under Act 1985 c.6.
- .—(1) In section 440 of the Companies Act 1985—
- (a) after the words "section 437" there shall be inserted the words "above or section 81 of the Financial Services Act 1986"; and
- (b) after the words "448 below" there shall be inserted the words "or section 92 of that Act".
- (2) In section 8 of the Company Directors Disqualification Act 1986—
§ The noble Lord said: I beg to move Amendment No. 377. This is another technical amendment. At present the powers given to the Secretary of State under Section 440 of the Companies Act to petition the court for the winding up of a body corporate are only exercisable if it appears to him from a report of inspectors appointed, or information obtained, under Companies Act powers that this is in the public interest. This Bill enables investigations to be carried out into the affairs of persons carrying on investment business. Such an investigation may well uncover evidence about a company, not necessarily an authorised business, which is of such a nature that the Secretary of State may wish to bring a petition to wind that company up.
§ At present, his Companies Act powers could not be used because they may be invoked only if the Companies Act investigation powers have been used. Such a further inspection would have to be set in train. This really would be a nonsense, so it is proposed that information obtained using powers given in this Bill should be able to be used by the Secretary of State to invoke his Companies Act powers.
§ The amendment to the Companies Directors Disqualification Act is made for the same purpose in relation to applications by the Secretary of State for disqualification orders against a director. I beg to move.
§ Lord Williams of Elvel
As the noble Lord, Lord Brabazon, has said, this is a rather technical point. However, it raises certain matters that we may have to study carefully. Therefore, as with all the Government's new clauses, I must reserve our position until we have had a closer look at it.
§ Lord Brabazon of Tara
I think that we have reached a suitable moment at which to adjourn this 788 Committee stage. I suggest that we do not return to further consideration of this Bill until 8.30. I beg to move that the House do now resume.
§ House resumed