HL Deb 06 November 1986 vol 481 cc1203-22

4.33 p.m.

Debate resumed.

Lord Peyton of Yeovil

My Lords, I am sure that your Lordships' House will be grateful to the noble Lord, Lord Harris of High Cross, for raising the matter earlier this afternoon. He dealt clearly and at some length with the facts so that it is not necessary for me to take up more than a very limited amount of your Lordships' time. I myself do not propose to delve into the matter of how the question was handled by the European Court, for that court seems to have handed the matter back to this country more or less untouched. After a prolonged legislative wrangle lasting some years, the Government acquired in 1979 the assets of the Kincaid company. They paid for those assets £3.8 million and they received £5 million of cash and £13 million of trading assets. That seems to me to be the cardinal fact with which we have to deal.

In August, 1979, Sir Keith Joseph—and I should like to take the opportunity of endorsing the remarks made by the noble Lord in opening the debate, remarks referring to the respect which we all have for his intelligence and his integrity—gave a Written Answer to Parliament. It is a well known practice for governments which wish to dispose of an awkward and unpleasant Question to do so by means of a Written Answer immediately before the Summer Recess. This matter was one which I think was very well fitted to that kind of manoeuvre.

I should like to quote briefly from the Written Answer which Sir Keith gave on that occasion for it is very germane to the matter we are now considering. Sir Keith said: We recognise that some previous owners and many members of this House and the public believe that the terms of compensation imposed by the 1977 Act were grossly unfair to some of the companies and we share this view. We have explored every possibility to right the injustice done by the previous Government, but to our very great regret we have concluded that amending legislation to establish new compensation terms retrospectively will be unjust to the many people who sold shares on the basis of the previous terms". One comment which must immediately be made is that, so far as 1 am aware, no shares in the Kincaid company changed hands—or at least the shares were not subject to a public quotation.

There are a number of questions which I hope the Government will answer and which I hope my noble friend will answer clearly. Who arrived at the figure of £3.8 million? By what process was the stockholders' representative convinced that this was the best that he could do? One understands very readily how the majority of the stockholders may have been convinced that the game was not worth the candle and that to argue at length with a government would be to take on an opponent whom they could not beat. But they needed the money and it was better to get the whole matter settled for good.

I take it that the Government accept that in these matters the question of fair dealing is of some importance. So I would ask this: Who, during this whole saga, ever applied his mind to the question of how far the compensation offered could possibly be described as fair and adequate? And if that were so, how on earth could that person have come away satisfied! I say with some unease that if the Government cannot address themselves to that question and satisfy your Lordships' House upon it, it would be very difficult to avoid the conclusion that the present Administration followed the example of their predecessors in regarding the question of fairness as being unimportant. I hope that that is not the case.

4.40 p.m.

Lord Monson

My Lords, we are indebted to my noble friend Lord Harris of High Cross for giving us the chance to discuss this important ethical question this afternoon. I should like to assure the House that I have no personal axe to grind. On the contrary, the compensation terms for the one shipbuilding company in which I had a miniscule interest were generally agreed to be not unreasonable.

There are a number of things which I submit are beyond dispute. Whatever the perverse interpretation, or at any rate the highly curious interpretation, of Article 1 of Protocol 1 of the European Convention on Human Rights by some of the judges at Strasbourg, the compensation terms for a number of the companies concerned undoubtedly contravene the principles of the 1948 United Nations Universal Declaration of Human Rights as well as contravening the Washington Convention, both of which have been ratified by the United Kingdom. The fact that they may have no force in law is neither here nor there when we are discussing matters of principle.

Secondly, the compensation terms (or the confiscation terms as they might more accurately be called) for the unluckier shipbuilders were condemned throughout the length and breadth of the Conservative Party during the mid-1970s, the late 1970s and indeed into the 1980s in both Houses of Parliament, as well as in public. I have hundreds of quotations that I could cite to your Lordships in support of this, if time permitted. Of course, much criticism came also from the Liberal Benches and from these Benches, notably from my distinguished noble friend Lord Goodman, the late Lord Robbins and the late Lord George-Brown.

The Conservative Government, when they came to power in May 1979, had the power, and the majority, to reopen past cases if the political will had been there. Even more so did that Government have the power to ameliorate, or at least compromise upon, those cases which were still in the pipeline in late 1979 and early 1980, if the will and determination had been there. But the Government evidently did not have that will or that determination. What is more, ironically but shamefully, the compensation terms finally agreed after May 1979 were even more confiscatory on balance than those finalised before that date.

The practical consequences of this have been mentioned on earlier occasions both in Parliament and in the press: such as the fact that the Conservatives, unlike the Liberals, the Independents and members of the SDP, will not have a moral leg to stand on if a future government of the extreme Left starts to nationalise everything in sight and in so doing fixes compensation at less than one-fifth of asset value, or the fact that overseas governments may well see this as a green light to renege on their commitments to Britain: their commitments in respect of Hong Kong, for example.

However, there are further adverse consequences to be expected of a less tangible but equally worrying nature. A great many people are deeply concerned about the continuing erosion of what we loosely term "middle-class morality"—which of course was never strictly confined to the middle classes as such. It may be that middle-class morality is dying; but it is ironic that it should be a Conservative Government, ostensibly devoted to Victorian values (and charitably I have always assumed Victorian values in this context to mean Victorian virtues rather than Victorian vices) which hammers the final nails in the coffin of middle-class morality. A Conservative government which makes a complete U-turn on the fundamental matter of property rights—fundamental to individual freedom, that is—is hardly likely to dispel the pervasive and all-prevailing cynicism that we see in this country today and the consequent determination to get rich quick by any means while the going is good. It is not as if the Government's opportunist rejection of property rights was an aberration. On the contrary, it represents the culmination of a series of decisions in financial and fiscal fields which seem to indicate a lack of consistent principle on the part of this Government.

To give a few examples at random: householders who apply for social security benefits are treated a good deal more favourably than those people who have the misfortune to rent their houses, where capital disregard is concerned. Men or women earning £14,000 a year pay a lower marginal rate of tax cum national insurance than people earning only half that amount. An elderly person who has held a share for 25 years which has shown a 50 per cent. capital loss in real terms may nevertheless be liable for substantial capital gains tax upon that loss as a result of the inexplicable refusal by the Chancellor to index pre-1982 acquisitions; whereas short-term speculators, who may well be aided by inside information, can make short-term speculative gains up to £6,300 a year without paying a penny in capital gains tax.

On the other hand, a man or woman in a 9 to 5 job has to pay tax cum national insurance at a marginal rate of 34 per cent. on every penny they earn over £2,250 a year or so, assuming that they are single. And we all remember the fiasco over mortgage tax relief and relief on pension contributions at the time of the 1985 Budget Statement. The whole pattern seems to be governed by expediency and by whichever powerful pressure group has shouted the loudest most recently, rather than being determined by a consistent philosophy and morality.

To reiterate, my Lords, this breeds cynicism, coupled with a resolve to make money fast while the going is good, rather than to invest and plan for the longer term, in case the rules which people hitherto imagined to be immutable turn out to be transient and subject to capricious alteration or reversal. Unless this tendency can be halted, things do not look good for the long-term future of this country.

4.47 p.m.

Earl Ferrers

My Lords, I think the House owes a great debt of gratitude to the noble Lord, Lord Harris of High Cross, for introducing this topic today on the matter of compensation which has been paid to companies taken over by nationalisation. I am bound to say that I feel a certain tinge of sorrow for my noble friend Lord Lucas. It fell to a Conservative Government—the last one—to administer a law which was passed under a Labour Government and to which the Conservative Party when it was in Opposition and indeed later when in government, was deeply opposed. My noble friend will no doubt seek to defend what the Government have done. I am motivated to take part in this debate because there has been manifest unfairness, and I should like to see that unfairness aired, debated and rectified.

The unfairness which has been ascribed to certain companies indicates the unfairness of nationalisation. The party opposite has always been a protagonist for nationalisation. It has wanted it and has succeeded in drawing into public ownership a number of different companies. It is absolutely entitled to do that; it is entitled to its views and entitled to take that action. The fact that between the two sides of the House there are different views on the merits of the case for nationalisation is neither here nor there as regards this debate. It is solely to do with the compensation which was applied on the basis of the nationalisation when it took place.

However, what is important—and I am sure noble Lords opposite will agree—is that when companies which have quite properly and legitimately traded in the private sector find that they are involuntarily taken over and taken into the public sector, those companies should be fairly treated as regards compensation. That, I suggest, has not been the case.

The basis of the compensation to be paid to the companies taken over under the Aircraft and Shipbuilding Industries Act was the value of the average price on the Stock Exchange for six months ending in 1974; and of the 43 companies taken over, only one had such a quotation. The value of other companies which were taken over had therefore to be determined—not agreed, but determined—by the Secretary of State for Trade and Industry in consultation with the stockholders' representative who was to look after the interests of stockholders. The Secretary of State had discretion to fix the values. He had discretion to fix them above the minimum and he alone had that discretion.

The first unfairness is that, whereas public companies tend for obvious reasons to publicise their successes, private companies tend for equally obvious but different reasons to be more modest about their successes. Therefore, to ascribe to an unquoted private company the sort of share figure which it might have had had it been a publicly quoted company (which it was not) is obviously unfair, inaccurate and indeed invidious. That is what happened to 42 companies. Only one was a quoted company.

Their values had to be determined by the Secretary of State for Trade and Industry or by arbitration; but the arbitration was to invent the value of a share which did not in fact exist. It had to be invented according to the Act's supposition that the company was a public one. The tribunal had no powers of discretion. It was the Secretary of State who had those powers, and they were wide powers.

It is this value for different companies which has been the cause of such bitterness and controversy—so much so that some companies felt the injustice to be so great that they took their case to the European Court of Human Rights. The Conservative Government who had by then come into office had to defend the case for compensation which they had inherited from the previous Labour Government and which they had resolutely opposed. That is a somewhat bizarre state of affairs but that is life.

I am not a lawyer but as I understand it the judgment, in which five judges dissented, did not say that the Government were right and that the appellants were wrong, but merely said, in effect "This is a domestic matter for the United Kingdom in which the court does not have the locus to interfere". The unfairness therefore comes back again into the area of responsibility of the Secretary of State for Trade and Industry, and there are a variety of aspects to this unfairness. By the time that the payments were made it was 1979–80.

On the values which had purported to obtain in 1974, no allowance had been made for inflation which by then had been about 80 per cent. No allowance had been made for the fact that certain companies—Kincaid being one—were undergoing developments in 1974 which resulted in profits being less than they might otherwise have been. Therefore, their successes were modest and profits and earnings formed a major plank in arriving at valuations. As the noble Lord, Lord Harris, said, in the case of Kincaid, the Government obtained the business in 1977, which at that time consisted of £13 million of assets and £5 million of cash, or a total of £18 million, for £3.8 million. So for £3.8 million the Government acquired immediately £5 million of cash, making thereby an immediate profit off £1.2 million, and they also had the whole of the rest of the business whose assets were worth £13 million thrown in for nothing. By no conceivable stretch of the imagination can that be said to be fair.

In the case of Vosper the vesting date was July 1977 and, as the noble Lord, Lord Harris, reminded us, (and it does no harm to remind ourselves again), Vosper had assets of £37 million and cash in the bank of £5½ million. It was making pre-tax profits at the annual rate of £7 .85 million. The Government paid £5.3 million. That cannot possibly be said to have been fair. It is not surprising that in desperation these companies went to the European Court of Human Rights to ask whether it could help. However, as I said earlier, the court concluded that this was a domestic matter for the United Kingdom.

The fact that the Government's compensation levels have been unfair can be instanced by Lithgow Drydocks. The Government offered £800,000; the shareholders said that this was inadequate and elected to go to arbitration. The Government said "If the shareholders go to arbitration, our offer lapses". When the shareholders went to arbitration, the Government offered not £800,000, but £500,000. The shareholders asked for £3 million. The arbitration tribunal awarded not £500,000, which the Government had offered, but £3,500,000, which was even more than the shareholders themselves had asked for.

These are merely examples and it gives me no pleasure to say that the Government, of whom I had the honour to be a member (or some may uncharitably say of whom I was an ornament) have acted unfairly. However, they have. The noble Lord, Lord Peyton, mentioned that Sir Keith Joseph, who was then Secretary of State for Trade and Industry, referred to the fact that there was unfairness, and he said "We share this view".

If something has been unfair, it is always possible to right it or at least to ameliorate the unfairness. I ask my noble friend to have an open and a generous mind in his consideration not just of the figures but of the grievance as a whole. I ask him two questions. Does he consider that these companies have been treated fairly in compensation? If he does not think so, or if he is even in doubt, I ask him whether he will undertake to look into the matter to see, even now, whether steps can be taken to rectify what seems to many people to be a manifest unfairness and even an injustice. The request that I make to him is whether he will undertake to look into this matter and see what can be done. I do not ask him for a guarantee to alter the situation, because that would be asking too much, but I ask him to look into it.

4.57 p.m.

Lord Denning

My Lords, as this Question concerns a decision of the European Court of Human Rights, I have taken the opportunity of reading the whole 80 pages of the decision. It is most instructive, and having read the judgment of the 13 judges and the dissenting judgment of the five judges, my view (and I think I will be supported by many) is that the five dissentients were right. I ask Her Majesty's Government to implement the views expressed by those five dissentients.

This matter needs a little explanation for laymen as well as for lawyers, but the salient facts are these. When the Labour Government for the first time obtained a majority (though not an overall majority) in Parliament in February 1974, they announced that they were going to nationalise the shipbuilding and aircraft industries. It was then asked, "What is the compensation to be?". The answer was, "We will base it on the previous six months' share values, because share values will be distorted by the prospect of nationalisation and we are therefore going to take the base figures as those of the six months at the end of 1973". If that had gone through promptly and effectively within a few months, it might have been fair compensation. But owing to parliamentary and other troubles it took three-and-a-half years before the shares were taken over and nationalised.

In those three-and-a-half years up to July 1977, values had altered dramatically. For instance, in the Kincaid case, instead of being worth between £2 million and £3 million at the end of 1973, by the time they were vested their value was far more—over £5 million in cash at the bank and £14 million in trading assets. So it was nearly £20 million as against £3 million. All that had taken place because of the delay in vesting. So the value that the Act contemplated was entirely different from what it was when vesting actually took place. Was that right or was it not?

I now come to the very difficult question of what the European Court of Human Rights had to say. They had to go to a most general and illusory article in the convention. Paragraph 1 of Article 1 states: No one shall be deprived of his posessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law". That does not give much help until you have the lawyers or the court to interpret it. I shall not go into all the interpretations.

One of the key passages was, according to the "general principles of international law". I may say in passing that that is a very debatable area. But I think it is generally accepted that a person should not be deprived of his property or possessions except in the public interest and having—these are the important words—prompt, adequate and effective compensation for his property. Would compensation based at the end of 1973 be prompt, adequate or effective when the takeover was not until July 1977? There is a little controversy over those applications of international law, but I am told that our Government accepted that it had to be prompt, adequate and effective.

There are quite a lot of technicalities, but what did the majority 13 say! They said that that article had not been broken. But what did those other five say? They said, "It is all very well to put that 1973 valuation in at the beginning, but owing to the lapse of time that took place before it was settled there ought to be provision for reconsideration of the amount before it came to be paid".

I shall read two passages from that minority judgment. First: No one can deny that it was possible to introduce some mechanism whereby a financial adjustment would have been made to take account of the increased remoteness of the reference period … Such a course was all the more necessary because it had been argued in Parliament that certain of the Act's provisions were unfair, a fact which the Government did not contest at the hearings. Secondly, they went on: by virtue of the prolongation of the internal initially envisaged [there was] unreasonable and disproportionate distortion". That is what they said. As time went on, there ought to have been provision put into that Act before it was passed to make adjustments, so as to make allowances for the difference that had arisen. But there it was. The Act went through without the adjustments being made. That was a mistake. I do not say which Government it was that made the mistake.

But then we get on to the position after the Act was passed. On principle, and in view of what was said by those five, ought not account to have been taken of the lapse of time? In the ordinary course of events in the courts, we take account of that when we are assessing personal injuries. If someone is awarded compensation five years after his accident, we always take inflation into account. We take into account other factors which have appeared in the interval. In the case of Kincaid, that company had improved their business; they had worked hard; they had a good business and they had saved money. As I said, they were not allowed to part with it. They had over £5 million in cash and £14 million in trading assets. Clearly, common justice required that their position should have been reconsidered in the light of the intervening events.

I am afraid that that is what Sir Keith Joseph virtually said in reply to a Question for Written Answer on 7th August 1980. At col. 290 of the Official Report, he said: We recognise that some previous owners and many Members of this House and the public believe that the terms of compensation imposed by the 1977 Act were grossly unfair to some of the companies and we share this view. We have explored every possibility to right the injustice done by the previous Government, but to our very great regret we have concluded that amending legislation to establish new compensation terms retrospectively would be unjust to the many people who sold shares on the basis of the previous terms". I do not agree for one moment with that last bit. What we ought to consider are the people whose property has been taken and paid for on the basis of a gross undervalue, because there was no intervening provision for readjustment.

If the Conservative Government at that time took the view that it was grossly unfair to the companies, they did not need amending legislation for something like that. Whether or not it was called an ex gratia payment, the Government could do what was fair without amending legislation. They admitted that there was gross unfairness and they ought to have done something. If only those five had been in the majority, the Government would have been compelled to do it. If those five had been in the majority they would have held that our legislation did not comply with the European Convention on Human Rights, just as we said in the case of those railwaymen. There was legislation about the closed shop and so on, and the Court of Human Rights said it was not right and it had to be remedied by giving those railwaymen compensation. So if those five had been in the majority, those people would have had to be paid because their property was taken on the basis of a gross undervalue.

In a way, I am speaking of the European Court of Human Rights. The question they ask is: is it to be a precedent? I suggest that that decision is not binding on your Lordships. It is no part of our law. On the other hand, I think that your Lordships, or the Government, can give a good example to the world by going by the views of the dissentient majority. Indeed, I gather that my noble friend Lord Shawcross, whose memorandum was read out, says that all the investors in companies and so on want to know what is the position. If they have shares in companies which are to be nationalised—whether they are overseas or inland shareholders; it does not matter which—the compensation has to be prompt, adequate and effective.

I suggest that the Government could give a good example to industry and to the world in general by ensuring that on nationalisation the compensation is fair, adequate and effective. In this particular case, where it has not been fair or adequate and as so much time has passed, it ought at least to be remedied now.

5.11 p.m.

Lord Diamond

My Lords, having given notice to both Front Benches, and having listened to a series of speeches from the Conservative and the Cross-Benches, all criticising the Government, I hope I will be forgiven for saying a few words in favour of the Government's point of view. I had some experience of and responsibility for these matters in my time, which was of course a long time ago.

The most recent development is the Big Bang and the way in which the Government—and indeed some of the Opposition—are encouraging people to buy shares and to become shareholders. The test is going to be shares and a market in which one can deal in those shares. That is going to be the one main aim. People are being encouraged to invest in shares. Let us all be shareholders and all be part of this market where we know that it is not unwise to go in because you can always get out; you can always sell. At which price do you sell? It is the ruling price on the market.

Therefore when compensation was being considered long before the 1970s, as the noble and learned Lord mentioned—because this matter has a much longer history than that—what could be fairer for compensation than the price at which people voluntarily and willingly buy and sell their shares? If I may say so with the greatest possible respect to those who do not think that that is the best test and who have some anxiety about what a future Labour government might do: do you think it wise to suggest to a Labour government of the future that paying the fair value as shown by the market quotations on the relevant day should be discarded as a method of paying compensation? Should some other scheme be invented—God knows what it might be—which the government might feel appropriate, having regard to their general policies and the pressures put upon them at the time by some of their Back-Benchers?

I should have thought that we would be far better off—many of us who are shareholders, possibly holding shares in a company which might be taken over and compensation paid—having regard to a price at which we are willingly buying and selling those shares, day after day. That is my first point.

Criticism has been made against that for a number of reasons. One reason is that no provision was made in the Act which provided for what I can only repeat I regard as a very fair form of compensation which I had the good fortune to adopt when I was responsible for these matters. The complaint is that no allowance for any variation was made in the relevant Act. The noble and learned Lord spoke about variation upwards. He did not utter one syllable about variation downwards and what would happen if the value dropped to one-tenth of what it might otherwise have been or was at the relevant date.

The government might then say, "Ah, we were foolish. We must look after the nation's assets. We promised X pounds per share because that was the market price but now that we are actually paying over the cheque the shares are being quoted at one-tenth of X; so here is one-tenth of X". Your Lordships can imagine the row that would occur if the Government went back on the Act, passed by Parliament, on the method of compensation.

Another complaint is being made—an unusual complaint, but one that I welcome from these Benches—that in future we should have regard to the minority vote rather than the majority vote. I welcome that with open arms. I hope that every time I find myself in the minority we shall, with the assistance of the noble and learned Lord, convert that into the decision of your Lordships' House and march merrily on with legislation on that basis. I wish that were so, but I dare say the noble and learned Lord will not go as far as that. Therefore I am afraid I cannot feel totally convinced by that argument.

The criticism is then made, "But what about the delay? You could have brought in a new Act and done something about it". I refresh your Lordships' memories about the delay that occurred on the nationalisation of the steel industry. Steel was to be nationalised and the compensation formula was again this same formula—the price at which people would buy and sell steel shares willingly up to the point of time when nationalisation was notified and, therefore, would affect the price. Obviously, in such a case the price falls immediately and, equally obviously, shareholders regard it as unjust that they should be required to accept the reduced price when it is only a political effect. Therefore you stick to the price before nationalisation is announced. Of course you do not take one day, but a period. In fairness, you must average it over a period. I am sorry that I do not know what was done in this particular case, but my recollection is that in the case of steel the period was six months, and that seems to me to be a reasonable period.

Any of your Lordships who are octogenarians will remember as well as I do that what happened was that two members of the Labour Party, which was the government party at that time, did not share the view of their colleagues. Nobody will recollect more than the noble Lord sitting on the Woolsack that at that time the government majority was two. That had an impact because we had not adopted the noble and learned Lord's theory that you should go by the minority. On the contrary, at that time the other place went on the basis of the majority. But there was no majority, so the matter was delayed and the Act was not passed.

After the return of a new Labour Government which had, in the vote of the people, authority to continue with the nationalisation of steel, that legislation was resumed and a new Act was passed with the same formula. However, a delay having taken place the Act then applied to the new date on which it had been announced. Therefore the relevant compensation was calculated on the six months prior to the new date, not the old date. What was the result of that? Whereas the previous formula referred to a date on which the share prices were on a plateau, and then came down, the new formula referred to a date on which the prices were partly on a plateau and partly in a valley.

As a result, your Lordships will be pleased to note that those two dissenting Labour Members saved the country and the Exchequer a great deal of expenditure. To put it the other way round, the shareholders obtained less than they would have received had nationalisation taken place earlier. That was the effect of bringing in a new Act, and that refers to the philosophy which has been promulgated by the Cross-Benches only this afternoon. So I am bound to say that I regard the fairest way of giving compensation as the price at which a willing buyer and a willing seller exchange the property in question. That is what a free market signifies. That is what we have all been spending weeks and weeks on in the past few months in order to try to achieve that the market will be free, working properly and unbiased.

Earl Ferrers

My Lords, I should like to put a question to the noble Lord before he sits down. Quite correctly, he has addressed his mind to the fact that the price should be what a willing buyer will pay to a willing seller. He has not addressed his mind to what is the price of a certain article which has no willing buyer and willing seller because it is not quoted.

Lord Diamond

My Lords, it was because I did not want to detain your Lordships further. The answer is such an obvious one: one goes to arbitration. As every practising accountant knows, it is very difficult to value private shareholding. I am sure my professional colleagues will confirm that immediately. It is terribly difficult. One has to have something on which to anchor it, on which to hang it. There can be argument after argument and a minority shareholding in a private company can be valued at anything from X down to literally nothing. So what way can be found other than both parties putting their points of view to an informed and able judicially-minded individual, letting him listen to the arguments and decide?—and that of course is what happened.

Lord Monson

My Lords, before the noble Lord sits down, will he agree that he has said nothing about the three-day week which was in force at the time compensation was fixed and which greatly depressed share prices at the time? Nor has he said anything about the enormous inflation which took place between the date when the compensation was fixed and the date when it was actually paid out and for which no allowance whatsoever was made.

Lord Diamond

My Lords, with the greatest possible respect, that is just not accurate. It is not accurate to say that no allowance was made for the intervening period. As my information goes, the full interest was payable from the date that the compensation was payable until the date that it was actually paid. The full interest took account of inflation. It is the only way one can take account of it. That is the normal way of taking account of it. So I am afraid that I am not affected at all by that situation.

If the noble Lord should say, "Why didn't you take account of a situation which was exceptional and arose for a very short time?" the answer is that one spreads over six months. That is the argument for doing it. It is what we did, and, as I understand it, it is what happened in this case.

5.23 p.m.

Lord Bruce of Donington

My Lords, the House will be grateful to the noble Lord, Lord Harris of High Cross, for having drawn its attention to what, after all, is a very serious matter. No one in your Lordships' House wants any individual in the United Kingdom to suffer an injustice. A sense of justice and fairness is one of those elements that should be, and very often is, enshrined in the British character. We like to be fair.

Sometimes I wonder whether this sense of fairness comes directly into our consciousness when, if ever, we contemplate the fate of those people in our country who are less fortunate than ourselves and are not fortunate enough to be shareholders in either public or private companies. If it is to be pursued as an end, justice ought to be thoroughgoing and extended to the lowliest people in our country. I should like to think that some of the enthusiasm for justice to shareholders that has been expressed today is capable of more universal and generally perceptible application. However, this does not affect the issue before us.

Your Lordships will be aware that one of these cases is again coming before the European Court of Human Rights. At least one company intends to have another attempt in that Court. Perhaps it behoves us therefore to be a little careful in what we say today. I am very sorry that the noble and learned Lord, Lord Denning, who is erudite on these subjects, is not present to give me the necessary legal backing, but your Lordships will recall that under the Continental system evidence is not restricted in the same way as it is before the British courts and that parliamentary proceedings and what is said in Parliament are taken into account in judgments that emanate from both the European Court of Justice and the European Court of Human Rights.

Like the noble and learned Lord, Lord Denning, I, too, have read through the judgment—some 77 pages of it—and I have also acquainted myself with the broad provisions of the appropriate sections in the Aircraft and Shipbuilding Industries Act 1977. Perhaps I may say immediately that reading through the judgment of a case before either the European Court of Justice or the European Court of Human Rights does not give one all the information required to form an objective judgment of whether the decision was right or wrong. That is unfortunately the case.

This afternoon I listened carefully to the noble and learned Lord, Lord Denning, and I thought that perhaps he was speaking in the role in which I knew him before the war when he was a KC, acting as a leader in the King's Bench Division. He was indeed a brilliant advocate, and today I thought that he was speaking in the role of advocate rather than talking in a judicial capacity, because on the basis of the judgment itself I do not see how he could possibly have come to the quick decision that the five dissenting judges were right and the 18 judges—as they are altogether—were wrong.

I found it very difficult to make up my mind, and I speak as an accountant concerned with the true and fair valuation of the assets of companies involved in this kind of operation. Those of us who have read the judgments will have been made aware of a very eminent firm of accountants—which will be known to practically all noble Lords who have any connection with the City or commercial and industrial affairs—called Whinney Murray. In every case they were the accountants appointed by the Government to arrive at a true and fair valuation of the business as a going concern, based upon the earnings and the likely future earnings of the various companies.

Many figures have been quoted this afternoon. I cannot reply to them because I have not seen the balance sheets of the companies involved. I have not seen, as is customary in British cases, a transcript of the case put forward by the plaintiffs and the respondent. All one can see is what appears in the judgment.

Noble Lords have referred to the value of the assets of the various companies. Without seeing the complete case and the balance sheets, I do not know whether they have taken account of the liabilities, because the judgment nowhere states "net assets"; it merely points out that assets are involved.

We are in a little difficulty. All governments, of whatever political complexion, should seek always when they bring in such legislation, to see that the persons whose assets or claim to assets are being taken over are properly compensated in line with the circumstances explained to them at the time that they acquired the assets; for example, if they are involved in privatisation terms.

It is true, as the noble Lord, Lord Harris of High Cross, pointed out, that some of the leading representatives of the party opposite committed themselves to rather extravagant observations at the time that the compensation proposals were originally published and debated in both Houses. Mr. Nigel Lawson, the present Chancellor of the Exchequer, described the compensation proposls as grossly inadequate. The right honourable Member for Henley, Mr. Michael Heseltine, described them as more like confiscation than compensation. Mr. Norman Tebbit, who expressed himself with a degree of moderation that one would find difficult to recognise in current circumstances, contented himself with the observation that there was no equity in them. Mr. Tom King was extreme about the matter; he spoke of outright confiscation.

We can understand the chagrin of the noble Lord, Lord Harris of High Cross, when a Conservative Government came into office and proceeded apparently to renege on their somewhat extreme political observations, which on reflection I suppose they must have regretted. Another factor is ignored. As I said, we have not seen the accounts. We do not know whether the assets referred to by noble Lords are net assets. We do not know whether they have taken liabilities into account.

The noble and learned Lord, Lord Denning, does not know whether the figures quoted as assets are net assets or whether the liabilities have been taken account of. Therefore, he is in no position to say what the valuation of the assets is. Although as an advocate he may be entitled to his opinion, as a man speaking in a judicial capacity it is not worthy of judicial observation in the absence of information. I shall not go through the judgment in detail because of the time. I shall refer to pages in the judgment where details can be found. Kincaid is dealt with at page 17; Vosper Thornycroft at page 19; Yarrow at page 27; Hall Berrill at page 25; Vickers at page 29; and the final one is at page 30.

If your Lordships read the transcript, you will find that in all those cases there was an initial valuation by that eminent firm of accountants, following which the Government made an offer to the shareholders or to their representatives. It is interesting to observe from the judgment of the European Court of Human Rights—this will be of considerable interest should another case go before it involving a different government—that it recognised the right of the majority of the shareholders of a particular class to arrive at a valid decision on behalf of them all.

That is enshrined in the 1977 Act. It will not lie within the precedent that has been created by the European Court of Human Rights for any shareholder of a class that has already agreed by a majority to the acceptance of a figure to go to that court because it protects the majority as against the minority of a particular class of shareholder.

A valuation on the basis described by the noble Lord, Lord Diamond, and elaborated on a little by me was arrived at by that eminent firm of accountants. The Government made an offer to the representatives. There were subsequent discussions about it. In some cases, reference was made to arbitration. In the case of Kincaid, a shareholders' meeting was held on 21st November 1979, to consider a resolution approving the agreement arrived at with the Government.

Sir William Lithgow and eight other stockholders were present, but he abstained from voting because he considered that the information available on the settlement was insufficient and that the figure did not represent Kincaid's value during the reference period or on vesting day. If he was dissatisfied, there was nothing to prevent him from dissenting and recording his dissent to the resolution approving the agreement.

In the event, in every case negotiations took place between representatives and the Government and a figure was finally arrived at. In all cases, the Conservative Government upped the figures beyond those originally contemplated by them.

The noble and learned Lord, Lord Denning, whose legal opinions are almost written on blocks of stone in my opinion, says that in his view—he speaks as a lawyer of some eminence—there was nothing to stop the Government from making an ex gratia payment. They did not need an amending Act. I took down his words as he said that. I am glad about that, because it seems to me that the Government did that. On the basis of the valuation prepared by Whinneys anything beyond the valuation that they had determined and negotiated upon was in the nature of an ex gratia payment.

I have not seen all the papers; I have seen only the judgment and therefore I cannot say whether the ex gratia payment made by the Conservative Government, in conformity with the suggestions made by the noble and learned Lord, was adequate or otherwise. This is one of the defects of accepting the Continental legislature over the top of our own.

English law tends to be precise. It requires evidence, cross-examination and everything else. One can achieve ultimately what is a reasonable and equitable view. But, after all, we accepted the ruling in advance by agreeing the whole covenant of the European Court of Human Rights in exactly the same way that we accept apparently the going and extended rights of the European Court of Justice in connection with Community matters. It may well be that the court made a mistake. There is no way of evaluating the decision made by the European Court of Justice unless one sees the arguments put forward by the respective parties.

I have, however, come to the conclusion that it would be most unlikely for a Conservative Administration—not unmindful, some might think, however unfairly, of the protection of property, especially the property of those who comprise a comparatively small minority of the population—to be unmindful of the claims made upon them not only by the individuals concerned but also their own philosophy. I cannot bring myself to think that within their own canons of justice, with which I do not always agree, they would act unfairly. I cannot believe that the trivial claims of the Treasury—what people sometimes regard as its mercenary penny-pinching attitudes—to safeguard the nation's finances down to the last £10 million or whatever, could ever overcome the profound sense of justice of the government of the day, who, after all, always seek to protect property interests wherever they can.

There is a lesson. The lesson is that one has to be very careful when one subordinates the system of British justice to systems that are apparently more flexible and often more ambiguous than our own. However, this is the way we are in modern civilised society. At least the British Government have been honourable in this. Unlike some governments that opt out of verdicts of the European Court of Justice when they think the judgment is going against them, at least the British Government had the good sense and the honour not to announce in advance that they would not accept the judgment of the court. For that, they deserve to be congratulated by us. I doubt very much, however, whether that will be much comfort to those who, even on the basis of what I consider to be insufficient evidence, still feel aggrieved about the money they might have lost.

5.43 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth)

My Lords, I am grateful to all noble Lords who have contributed to the debate on the Question raised by the noble Lord, Lord Harris of High Cross. I am not proposing in any way to discuss with your Lordships the amounts of compensation, the amounts of claim, or so on. I shall, if there is sufficient time, address myself to questions of substance raised by noble Lords. At the outset, I wish to deal specifically with the words contained in the noble Lord's Question. There has been speculation from time to time about the implications of the judgment in the case of Lithgow and others. The Government consider that this speculation is without foundation. I hope that my response will put the matter firmly in perspective.

The House will recall that the Lithgow case arose from seven applications lodged with the European Commission of Human Rights. The principle complaint was that the Aircraft and Shipbuilding Industries Act 1977 did not fulfil the Government's obligations under Article 1 of the First Protocol to the European Convention on Human Rights. The relevant part of that article—I appreciate that some noble Lords have already quoted it—reads, Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law". It is important to recall that the issue before the European Court of Human Rights was whether the 1977 Act was so open to objection as to show that the United Kingdom acted outside the margin of appreciation which the convention leaves with member states. As the House knows, the court found in the Government's favour by a large majority, as the commission had done before.

The court decided that the general principles of international law of prompt, adequate and effective compensation do not apply to the taking by a state of the property of its own nationals. In doing so, it reaffirmed the position in its judgment in the case of James and others, more commonly known as the Duke of Westminster's case.

I should recall in this regard that it was common ground between the Government and the applicants that the general principles of international law stipulate that a state may only take the property of a foreigner if the taking is for a public purpose, is not discriminatory and is accompanied by adequate, prompt and effective compensation. This has been the consistent position of British Governments, and it remains the position today. It is simply not true to suggest that the court's judgment constitutes any precedent for the expropriation of British assets abroad.

The European Court further held, again consistent with the previous case law, that the taking of property without payment of compensation of an amount reasonably related to the value of the property would normally constitute a disproportionate interference which could not be considered justifiable under Article 1.

In the particular circumstances of the Lithgow case, the court held that its power of review was limited to ascertaining whether the decisions regarding compensation fell outside the United Kingdom's wide margin of appreciation under the convention. Here, the court held that it would respect Parliament's judgment in this connection unless that judgment was manifestly without reasonable foundation.

It still is for the electorate and Parliament to decide whether any further nationalisation should take place and, if so, on what terms. The judgment of the court does not change this. Indeed, that is why prospectuses for privatisation draw attention to the statements of the Opposition so that investors can take such statements into account in deciding whether to subscribe. The noble Lord, Lord Diamond, and the noble and learned Lord, Lord Denning, drew attention to that point.

Of course, I realise that some may feel disappointed that the European Court did not give a judgment which would ensure that compensation in the event of nationalisation would aways be at a level which those affected would willingly accept. But the court itself commented that the valuation of major industrial enterprises for the purpose of nationalising a whole industry is in itself a far more complex operation than, for instance, the valuation of land compulsorily acquired and normally calls for specific legislation which can be applied across the board to all the undertakings involved.

I would suggest therefore that it is unrealistic to suppose that any method of valuation will be accepted as fair by all. Nationalisation is normally not a bargain struck with a willing seller.

The House will recall that the Strasbourg case arose from the Aircraft and Shipbuilding Industries Act 1977, which the Conservative Party when we were in Opposition vigorously criticised during its passage through Parliament, both as regards the merits of nationalisation and the compensation provisions.

We have not changed our minds in the slightest that there was much in that Bill to criticise, but we reluctantly had to decide in 1980 that we could not amend the compensation provisions. No practical and fair way of amending the terms could be found.

Contrary to what has been suggested, there was nothing in the arguments submitted by the Government to the court in Strasbourg that was incompatible with the earlier criticism of the compensation terms. Those arguments were directed to a quite different question. That is, whether the 1977 Act contravened Article 1 of the First Protocol. The court's judgment, in the Government's view, does not in any way adversely affect the position of British investors, whether at home or abroad.

I turn briefly to some of the comments that have been made this afternoon. I turn immediately to the report in Hansard in another place of 7th August 1980 at cols. 289 and 290, to which my noble friend Lord Peyton referred. He read a paragraph from that, as indeed did the noble and learned Lord, Lord Denning. However, both noble Lords ended their quotation at the end of the second paragraph. They failed to go on and quote what my right honourable friend Sir Keith Joseph, then the Secretary of State, said. He went on from the paragraph that the two noble Lords have quoted to say this: We had to recognise, moreover, that had we wanted as an alternative to offer the companies back to the former owners legislation would have been required. This would inevitably create a long period of uncertainty for the industry during the passage of legislation, the preparation of the detailed offer to the former owners and the consideration of the terms. Moreover He cannot return to the former owners that which was taken from them because the assets and liabilities of the companies concerned have changed. In the case of the aircraft industry the changes are quite clearly irreversible. We have therefore come to the most reluctant conclusion that there is no satisfactory way to alter the 1977 compensation terms—. The noble Lord, Lord Diamond, underlined this.

I have to say with the greatest respect to the noble Lord, Lord Harris of High Cross, that he was not quite correct in all that he said this afternoon. The wide margin of appreciation referred to in the court's judgment relates to the right of any contracting state to decide on the method and terms of compensation. But the 1977 Act did not give a wide measure of discretion. Compensation had to be within the confines of the statutory formula. In part that is an answer to one of the comments of my noble friend Lord Ferrers. Discretion to alter the compensation terms would have needed new legislation and the Government decided against this course, as I have reminded your Lordships by completing the quotation in Hansard of 1980.

I cannot help the noble Lord, Lord Monson, other than to suggest that his contribution was an interesting commentary on Government financial policies, with which he obviously does not agree, and some of the social consequences of those policies. I fear that it had little to do with the court's judgment.

My noble friend Lord Ferrers spoke of the unfairness in compensations. As other noble Lords have suggested, applicants' estimates of value relate to 1977. But, again, the noble Lord, Lord Bruce of Donington, reminded us that there was at the disposal of the Govenment of the day an eminent company to help in the valuation. The Aircraft and Shipbuilding Industries Act stipulated a reference period of six months ending 28th February 1974 for valuation for the purpose of compensation. The Secretary of State at the time had no discretion whatsoever to alter this. It was enshrined in the Act.

My noble friend Lord Peyton asked me about three specific matters. First, how was the compensatory formula arrived at? It was in fact arrived at by negotiation on the hypothetical base value of the unquoted shares, again as required by the Act, and I think that he will probably recall that. Secondly, how were the shareholders' representatives persuaded to accept ultimately the offers made? It is not for me to answer for the shareholders' representatives. Presumably they were ultimately satisfied that they would not do better if they went to the tribunal. Thirdly, the noble Lord, and indeed my noble friend Lord Ferrers, said that this was unfair. Again I refer to the Hansard report of 1980.

However, in addition perhaps I might say this to my noble friends. Sir Keith was faced with the problem of balancing one unfairness against another. No satisfactory base could be found for amending the terms. There was the probability of unfairness if they were to be changed. My noble friend Lord Ferrers asked me to be open minded and generous. But I have to say to him, with all the openness and generosity that I can muster, that I cannot give him the undertaking that he seeks. I am sure my noble friend will appreciate the reasons for my being unable to do this.

Earl Ferrers

My Lords, may I ask my noble friend one question? I am very grateful to him for giving way. Does the noble Lord mean by that answer that he therefore considers it fair to pay £3.8 million for £5 million of cash and £13 million of assets?

Lord Lucas of Chilworth

My Lords, I said at the outset that I was not going to involve myself in figures, for the same reason that the noble Lord, Lord Bruce of Donington, did not do so. I do not have the balance sheets. I do not have personal knowledge of the situation in 1974 when the valuations were made. It would be quite wrong with hindsight to make the kind of judgment my noble friend seeks from me.

I turn to the points made by the noble and learned Lord, Lord Denning. He spoke with hindsight. The Government have made plain their views at the time on the merits of the 1977 Act. The question was whether the harm it did could be repaired. The Government decided that repair was not possible. The noble and learned Lord said that we could have legislated. If the court's decision had been against us then we would have felt bound to seek ways of meeting the court's judgment. It is not for me this afternoon to determine by what means that would be done.

Perhaps I may turn to the noble Lord, Lord Diamond. From the reference point of vesting day, dividends could be paid subject to the safeguarding provisions. However, after vesting day interest was payable on the compensation and the court observed that this gave some shelter against inflation from then until the date of payment. The noble Lord questioned his own memory of this fact, and I can confirm that his memory is correct. It is, of course, exactly the answer to the question raised of him, by the noble Lord, Lord Monson.

I should like to turn lastly, but not least, to the noble Lord, Lord Bruce of Donington. I am grateful to the noble Lord for referring the House to the passages concerning the judgment of the court, as to how the amount of compensation was arrived at in each case. I believe that those noble Lords who still feel some disquiet in this matter should take the judgment and read it most carefully, as it puts into perspective a number of the figures and the suggestions that have been made.

I recognise, as does the noble Lord, Lord Bruce of Donington, that the judgment is no comfort to all those who feel very deeply that they were unfairly treated by the provisions of the 1977 Act. I repeat that we were unhappy at the time about many of the provisions of that Act, and remain so. However, I have said and given the reasons why it is with reluctance that the Government decided as soon as they came to power, after a very full and exhaustive review in 1980, that the compensation provisions could not be altered.

Lord Harris of High Cross

My Lords, before the noble Lord sits down finally, I should like to ask whether or not he accepts that what was on trial both at the Commission and at the international court was not the precise terms of the 1977 Act for the reason that they would have been out of time, more than six months having elapsed. I should like to ask the noble Lord whether or not he agrees that what was under consideration was the implementation of that law, and that was still being moulded at that time in 1980, 1981, or 1982, by his colleague the Secretary of State for Industry.

Lord Lucas of Chilworth

My Lords, I am not a lawyer or in any way connected with the legal profession. However, what the court had to determine was whether or not the 1977 Act, and those matters that flowed from the Act, were in contravention of our obligations under the 1952 European Convention on Human Rights, and in particular Article 1 of Protocol 1, which we have read out. That is what the court had to determine and they have given their judgment upon that matter.