Financial Services Bill

HL Deb 27 October 1986 vol 481 cc509-94

3 p.m.

Read a third time.

Clause 2 [Power to extend or restrict scope of Act]:

Lord Williams of Elvel moved Amendment No. 1:

Page 2, line 24, at end insert— (" ( ) The Secretary of State may by order make rules regulating the conduct of takeover offers in respect of companies whose share capital is comprised of investments within the meaning of Part 1 of Schedule 1 to this Act.").

The noble Lord said: My Lord, I beg to move Amendment No. 1, standing in my name and that of my noble friend Lord Morton of Shuna. The amendment relates to the conduct of takeovers, which your Lordships discussed during the Committee stage. However, it is framed differently from the amendment we moved then, for reasons which I will explain in due course. In the meantime I have to tell your Lordships that today is the day of the Big Bang, and the Big Bang in fact lasted 15 minutes, because after 15 minutes the computer system of the Stock Exchange crashed and blew a fuse and market makers went back to the ordinary dealings that they are used to. Nevertheless, we assume that the Stock Exchange system will work in the course of time and we must frame our legislation in that light.

In our view, there is one big hole left in this Bill. The Bill sets out, as we all know, to protect the investor. Indeed, at the weekend Sir Kenneth Berrill, chairman of the Securities and Investments Board said: This Bill sets out to protect the investor". Above all, it sets out to protect the small investor on the grounds that the "big fish" are able to look after themselves.

Our amendment seeks to give the Government reserve powers. It does not seek to make it mandatory for the Secretary of State to appoint a panel to supervise the conduct of takeovers: that was the concern of the amendment that we moved in Committee, and your Lordships decided against it. Nevertheless it is right to return to the reserve power question, and our amendment is permissive and not binding. It says: The Secretary of State may by order make rules … ". Furthermore, these rules will be subject to the affirmative procedure in Parliament. If he does choose to make such rules, your Lordships will have another opportunity to debate the rules that he makes on that occasion.

I have no intention of going over the ground already covered in Committee. The contentions we have are threefold. The first is that the takeover code, which I have in one hand here, and the Bill, which I have in the other hand, cannot run side by side. Giving back to the question of the Guinness company, to which the noble Lord, Lord Grimond, referred in Committee, I would pick up the question he asked: would the Bill, if enacted, cover the Guinness situation?

As I read the Bill as drafted—having also very carefully read through the response of the noble Lord, Lord Lucas of Chilworth, to that debate in Committee—I come to the following conclusion. In the Guinness affair where, as your Lordships will remember, certain assurances were given in the offer documents relating to the appointment of Sir Thomas Risk, Governor of the Bank of Scotland, to the chairmanship of Guinness and to the moving of the headquarters of Guinness to Scotland, if the offer had been a cash offer without use of Guinness paper or shares, debentures or anything else, and if Guinness had been in good faith in making those assurances, not being knowingly or recklessly misleading, then the Bill if enacted would not cover any subsequent backtracking by Guinness on that assurance. The offer document, if it is a cash offer, would be the object of scrutiny and comment by the Takeover Panel and would not be the object of the Securities and Investments Board under the statute.

If, on the other hand, Guinness had made, as they did, a paper offer using their own shares in exchange for Distillers' shares, in those circumstances. even though they had been acting in good faith and even though they were perfectly convinced that what they were doing was not reckless or knowingly misleading, they would have been caught by the Bill—either, as the noble Lord said in Committee, under Part IV (listing particulars) or under Clause 47(2) of the Bill.

It is an extraordinary state of affairs where a cash offer can follow one route and a paper offer can follow another route. I do not have to remind your Lordships that if the Takeover Panel were to consider that a company had been in some sense misleading, or had gone against what it said in its offer documents in a cash offer, its only sanction would be to say, "This was not really right and perhaps you should ask your shareholders to think again." On the other hand, if the Bill is enacted the penalty provided for that in the Bill. if it is proved to be a criminal offence, is seven years' imprisonment.

Our first contention is absolutely clear. These two things cannot run side by side. Our second contention is that the statute itself cuts across the panel authority and the takeover code. Your Lordships will know that there is at the moment a case which is being studied by the Takeover Panel: that is the case of Turner & Newall's bid for Associated Engineering. The facts are somewhat obscure, but the fact that I can discuss these matters today and, as I understand it, will be able to continue to discuss them if they come under the Takeover Panel in the future, is because there is no force of law in the code and therefore no sub judice procedure for preventing me, the press or indeed anybody else, from discussing these topics.

Turner & Newall made a perfectly good bid for Associated Engineering. When I say "good", it was good in order. It was made according to the provisions of the code and conducted in accordance with those provisions. Nevertheless, the bid failed and it failed by 1 per cent., because at the end of the day Turner & Newall received only 49 per cent. of acceptances of their bid when, under the rules of the code, they had to go over 50 per cent. in order to become unconditional and to succeed.

Subsequently it turned out that shares were placed at a price well below the bid price. There is talk of a 20 per cent. discount below the bid price; and indeed, when it was known that the bid had failed, the market price fell back, as is quite normal. It subsequently appeared that a number of institutions had bought shares in the market and had not assented to the bid. The question the panel had to look at was whether the people who had bought those shares and were rumoured to be major institutions were acting with Associated Engineering in frustrating the bid or whether they were acting independently.

Your Lordships will have seen the Sunday press and will have noticed that there are a number of rumours circulating about this. I quote from yesterday's Observer, which says: It would appear, from a series of leaks, that Hill Samuel's investment arm [they being the adviser to Associated Engineering] agreed not to accept Turner & Newall's offer in respect of its holdings in AE unless the offer became unconditional. This, word has it, involved certain indemnity agreements with Hill Samuel". I go on to quote: Rumours are also rife that certain clearing bank purchases of AE equity at prices above the Turner & Newall 240p cash terms were not disclosed.

The fact that I am able to talk about this is, as I said, because the code itself does not claim to have the force of law. If the Bill is enacted and the alleged facts as revealed by the Observer are true, this surely is a case where the Securities and Investments Board would be entitled and would be duty hound to mount an investigation. If ever anything smacked of arrangements under Clause 47 giving a misleading impression, it is this. If the SIB were to mount such an investigation, and if it were shown that there was malpractice, then that would be a criminal offence.

Let us suppose that the Bill is enacted. Let us suppose that all this happens next year. A company makes a bid; there is some doubt about the circumstances of the offer and there is some doubt about the conduct of the takeover. The SIB is hound to have a role in all this because it is given a role concerning misleading statements under Clause 47 in the Bill, which will then be an Act. At the same time the panel has a role. Who will play the predominant role? Will it be the SIB with delegation from the Secretary of State, who in turn has his authority from Parliament, or the Takeover Panel which is a voluntary organisation with a voluntary code without the force of law? The mere presence of the SIB on the scene will diminish the authority of the panel. I quote again from the same Observer article: Unfortunately the City's merchant banking fraternity is increasingly dismissive of the panel".

Our third contention is that this Bill is about the protection of the small investor. The conduct of takeovers is a game for professionals. I use the word "game" because many professionals consider it to be a sort of game. The professionals are aware of information that is not available to the small investor because they are working very close to the market. In those circumstances, it is our view that Parliament should give the Secretary of State the right, if it is necessary and if he finds that the small investor is not properly protected by the operation of the panel and the takeover code, to protect the investing public by statute. We are asking your Lordships to give it to him. I beg to move.

Lord Ezra

My Lords, I feel considerable sympathy for the views so cogently expressed by the noble Lord, Lord Williams of Elvel. However, I have certain reservations. The fact is that we are in the process of enacting a very complex Bill. We are likely to put very serious and complex duties upon the designated agency, the SIB. The Takeover Panel has now worked for a number of years, and has worked successfully. I should like to suggest that this is one of those issues which could, with advantage, be deferred. The SIB will have quite enough to do to carry out the tasks which are likely to be entrusted to it under present and proposed legislation. We should see how the two work together. If the comments of the noble Lord, Lord Williams of Elvel, turn out to be correct in practice, then there is always a future date when the matter can be corrected. But I should like to suggest that we do not put upon the SIB these additional duties at this stage. I therefore feel some reluctance to agree with the noble Lord's proposition.

Lord Tryon

My Lords, I was not going to speak to this amendment; but, with respect to the noble Lord, Lord Ezra, I think he is off the point. I believe we are putting responsibilities upon the Secretary of State. Perhaps they are not even responsibilities. We are giving him the opportunity of looking into these matters, and the SIB is not mentioned in this particular amendment. Had it been, I should have agreed with him wholeheartedly.

Lord Jacques

My Lords, as I understand it, this amendment seeks to defer action and says that action will be taken only if the Secretary of State finds it necessary. We therefore think that this is the time to do that. The time for action may be later.

3.15 p.m.

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

My Lords, I am grateful to the noble Lord, Lord Williams of Elvel, for reminding us that this amendment is somewhat different from the amendment which he put down previously and which we considered. However, it is different in only one small respect. In one sense I believe this is a very helpful amendment since it allows us to focus sharply on the underlying difference of view between the Government and noble Lords opposite. It strips away issues such as the role of SIB or the various means which might be adopted to appoint an alternative takeover panel. It addresses the question of whether there should be statutory rules on the conduct of takeovers, whether those statutory rules are in absolute terms in the Bill now or whether they are a reserve power.

Your Lordships will recall that during our debates in Committee I pointed out that certain matters to do with takeovers are already touched on the Bill—advertising in Part VI, for instance, and the provisions concerning the issue of securities. I might have gone on at that time to mention that various existing laws have a substantial impact on the conduct of takeovers. What participants in a takeover may or may not do is already constrained by statutes such as the Prevention of Fraud (Investments) Act and the Companies Act, by the requirements of the Stock Exchange (Listing) Regulations and by the general law of defamation. There is nothing inherently contradictory in having rules such as are contained in the takeover code standing alongside the law of the land. Where the law exists, that takes precedence. Where standards of behaviour higher than those required by law are set out in the code, that is a matter entirely for the panel. That is the situation we have had for the last 18 years and it has worked very well.

I also recalled in Committee the fact that the Government had, in the White Paper, invited views from practitioners and users of the securities market on whether they felt that statutory backing for the rules of the Takeover Panel would be more effective than the code's rules in regulating takeovers. Perhaps it might be helpful if we examine for a moment the three elements which need to be examined here. The first element is that of flexibility. Some of the code's rules demand high standards of behaviour by being expressed in strict terms. There are inevitably circumstances where such strict requirements are inappropriate. The non-statutory nature of the rules allows relaxation where shareholder interests are not prejudiced without the basic rule being brought into question. That is not easy to build into a statutory system.

The second element is speed. Because the panel itself interprets its rules, definitive interpretations can be obtained very quickly. That is not easy when we start talking about statutory rules which must be interpreted by the courts. This is vital in takeovers, where events move very quickly. Moreover, a combination of speed and flexibility allows the panel to introduce new rules to deal with new circumstances at very short notice.

The third element that we should examine is enforcement. I am sure there are those who would argue that tines—even imprisonment—will concentrate the mind more than rulings from a non-statutory body. Experience does not, however, bear this out. Contrary to what the noble Lord, Lord Williams, suggested, panel rulings are complied with. Moreover, in takeovers where each side is trying to influence the minds of shareholders over a short time span the effect of a critical statement can be very powerful.

I acknowledge that there are those who would argue that there should be reserve powers in the Bill which could be brought into operation if the panel's effectiveness began to be undermined; the point which the noble Lord, Lord Jacques, made in his very short intervention. We have indeed looked carefully at the argument that the legislation should nevertheless cater for the fear that the existing voluntary system may break down. However, reserve powers would carry a very real danger of provoking precisely the decline in the panel's authority which we are most keen to avoid. We therefore had to look very carefully at whether the risks of taking reserve powers outweigh the risks of being caught without them in the event of a deterioration in the panel's effectiveness, and we concluded that the balance of risk was against taking reserve powers.

In any case, should the need arise, a degree of support for some of the code's provisions could be provided through the general powers in the Bill. These include the power to make wide-ranging rules about the conduct of authorised businesses, the content of offer documents and obligations of listed companies. These powers could be used to give statutory force to rules on the lines of many of those in the takeover code and to enforce those rules. The first two categories of rules would apply only to authorised businesses, but it would be possible to prohibit authorised businesses from acting for offerors or offerees who did not behave in specified ways.

Even if the case for reserve powers were to be accepted, I fear that we would need something quite different from this seductively simple amendment. The most striking point here is the enormous breadth of the order-making power which is proposed. It does not, for instance, state to whom the rules will apply. Takeover offers involve a great many people. Apart from the offeror itself, there is the board of the target company, their respective advisers, people acting together with any of these parties and even substantial independent shareholders who have a part to play. Are the rules to apply to all of these?

Moreover, what are to be the sanctions if the rules are broken? The amendment provides none, but I suspect that this is an oversight. I have a shrewd suspicion from what thenoble Lord said in introducing the amendment, that he may have in mind criminal penalties—fines and perhaps even imprisonment. Furthermore, there is no apparent limit to the vires conferred by the provision. It would appear that any rule which might be concerned with the conduct of takeovers would be intra vires. I am glad that I am not the one to have to come to Parliament to seek such sweeping and ill-defined powers.

Nor do I think that this is just a drafting problem. The fact is that an enormous amount of work would be needed if we were to produce practical reserve powers—powers for which there is no immediate need and which might never be used. The noble Lord, Lord Ezra, came to exactly that conclusion. This is the Government's view. Takeovers attract a very great deal of attention. But it is interesting that no one has been able to identify a specific instance which has arisen where statutory rules would have produced a better outcome; if, indeed, anyone could agree on what a better outcome might he.

I was cognisant of the comment of the noble Lord. Lord Tryon, but I wonder whether the effect of conferring reserve powers on the Secretary of State has been thought through properly. Is the alternative to the takeover code to be a succession of statutory instruments, with all disputes to be resolved in the courts? And what relationship will these rules have with rules which a designated agency might have, some of which will no doubt impinge on the conduct of takeovers? Overlap between a body with statutory powers and a non-statutory panel is relatively easy to resolve, but what provision should there be for the overlap between two sets of statutory rules? I ask these questions with some feeling since, as I have mentioned, we looked very carefully at the case for reserve powers. I assure your Lordships that there are no simple answers to them.

I believe indeed that if reserve powers were to be conferred upon the Secretary of State by virtue of this Bill, there is little doubt that there would be extreme pressure put upon the Secretary of State for him to use those powers. On numerous occasions over the last eight or 12 months, we have had both questions and interventions in other debates on City matters with regard to takeovers generally. I can see that there would be a great deal of pressure brought upon the Secretary of State to use the powers that the amendment of the noble Lord, Lord Williams, seeks to introduce, and I believe that we would then enter into the difficulties that I have outlined.

I take the third point which the noble Lord, Lord Williams, mentioned. He said that the takeover code does not protect the small investor. But it is about protecting small investors; it is about ensuring that small investors receive the same offer as large institutions. There is no evidence of small shareholders suffering in an adverse way. Most critics of the code allege that it makes offers too easy, so allowing the small investor to have the opportunity of accepting an offer.

I was not intending to speak at all about matters which, as I understand it, are today the subject of the Takeover Panel's appeal panel, but since the noble Lord, Lord Williams, addressed himself to it I think I should just say something which concerns that appeal; because I shall not comment on a case currently before the Takeover Panel. Clause 47(2) would bite in any case, because this outlaws a misleading act or course of conduct. On the assumption that the Securities and Investments Board will be given the powers of the designated agency, it will be able to investigate in any case where there is reasonable suspicion of this criminal offence. Perhaps I may point out with the greatest respect to the noble Lord, Lord Williams, that like Clause 47(1), Clause 47(2) on misleading statements, promises and forecasts also applies in circumstances where there is a cash offer and where there is a share offer.

At the end of the day we come to a fundamental difference of view. It has been said many times before, but it remains true, that there is no point in mending something which is not broken. I believe that the Takeover Panel comes firmly into that category. The Government expect that that position will obtain for some time to come. The Government do not believe that these reserve powers are necessary, and I would urge your Lordships to reject this amendment as being unnecessary and certainly quite undesirable.

3.30 p.m.

Lord Hacking

My Lords, before the noble Lord, Lord Williams, replies perhaps I may say a few words. The noble Lord, Lord Lucas, concluded with the words "undesirable" and "unnecessary", and that has caused me to come to my feet. Those of us who have witnessed the work of the Takeover Panel during the past 20 years of its existence have seen, on the whole, a panel which served largely to the public good in its decisions. But the scenario that we are now considering—the scenario that the noble Lord, Lord Williams, is inviting us to consider—is that of a regulated City of London. I would venture to suggest that the principal reason why the Takeover Panel has been so successful during the past 20 years is that it has operated in an unregulated City of London, with the consent and support of that City of London. The days will now be different. That is why I believe that the amendment of the noble Lord, Lord Williams, is a sensible and desirable one. It gives power, if needed, in a regulated City of London to put the Takeover Panel into a position of greater strength.

Lord Williams of Elvel

My Lords, I apologise to the noble Lord, Lord Hacking, if I rose to respond to the noble Lord, Lord Lucas, too soon and did not first allow him to have his word in the debate. It was indeed a most interesting intervention from the noble Lord and I shall come back to it in a minute, if I may.

The noble Lord, Lord Ezra, advanced a series of arguments. I am bound to say to him that I could not quite tell whether he was arguing on my side or on that of the Government. He argued that the position should be deferred. Indeed, the position should be deferred. I think the noble Lord, Lord Ezra, is quite right. This is why we are not moving the same amendment as we moved in Committee, making it an immediate mandatory requirement that the Securities and Investments Board or the Secretary of State should set up a panel to regulate the conduct of takeovers. We are deferring the issue. We are saying that if conditions reach the point where the panel system breaks down the Secretary of State must have reserve powers.

If the noble Lord, Lord Ezra, feels that we are giving too much power to the SIB at the moment, I neither agree nor disagree with him. He may be right in that contention, or he may be wrong. All I can say to him is that my amendment does not propose to give the SIB immediate powers. Under my amendment the Secretary of State would have powers to make rules if the panel system breaks down, as I believe it will—but I do not expect your Lordships to believe me; we shall have to wait to see what happens.

Lord Ezra

My Lords, perhaps I may intervene. I always listen with great attention to everything the noble Lord, Lord Williams, says because of his great knowledge of the City. In his amendment it was implied, although not stated, that if the Secretary of State were to exercise his powers it would be through the SIB. Indeed, if this were not so, it would add a further element of confusion. So I took that to be what the noble Lord had in mind in practice.

Lord Williams of Elvel

My Lords, I am most grateful to the noble Lord for his intervention. It clears up one point, but still leaves me with the impression that he was arguing for deferred powers. If the noble Lord is arguing for deferred powers then he and I are on the same side.

Perhaps I may come to what the noble Lord, Lord Lucas, said. There were a number of interventions—very briefly from my noble friend Lord Jacques and from the noble Lord, Lord Tryon—which were designed to elucidate the point that the noble Lord, Lord Ezra, had made and the point that I was making. The noble Lord, Lord Lucas, made one or two points which I have to take up. First, he maintained that taking reserve powers would in some way exacerbate the problem because the Secretary of State would be under enormous pressure to exercise those reserve powers.

It has been one of the features of the debates on this Bill (among those of us who have had to work day and night on it) that the Government seem to have responded to pressures right, left and centre. The Government have brought forward amendments after practitioner X has decided that he wants something in the Bill. Practitioner Y has decided that he wants something else and they have to decide whether to put it into the Bill. It is the duty of a Secretary of State to resist such pressures unless it is his view that those pressures are right and that the Bill should be suitably amended.

The noble Lord says that if such powers as I suggest in my amendment are required the Government can always bring them in. But that would mean an amending Bill, and such a Bill would have to pass through both Houses of Parliament in the normal way and no doubt would be subject to the normal procedures of both Houses, with all the complications in legislative time to which your Lordships have referred on many occasions in the past few weeks.

We are seeking to put into the Bill reserve powers which will allow the Secretary of State to activate a system simply, if necessary, by himself appointing a panel to regulate the conduct of takeovers. It is no use the noble Lord saying to me that the mere presence of these reserve powers might give rise to pressure for these powers to be implemented. That is like saying that if I have sheep on my Welsh hill farm and my wall is breaking down—and Welsh hill sheep are very good at jumping, as the noble Lord will know—I should not mend the wall if it breaks down because that invites the sheep to try to jump over the wall. That does not seem a sensible way to set out conducting the regulation of takeovers and indeed the regulation of the City of London.

The noble Lord went on to say that the takeover code has an element of flexibility in its activities that the SIB backed by statute would not have. But then he destroyed his own argument by saying that the SIB was fully entitled to conduct what investigations were necessary—and indeed would have to conduct what investigations are necessary—to make sure that the statute is observed. So the very flexibility that the code has at the moment might well be destroyed by the authority of the SIB superimposing itself on the code.

The noble Lord went on to ask what rules I have in mind. The rules are very simple. I have no particular problem with the way the City code is framed. I do not believe that that is a particularly bad code. It is a code that has been developed over many years of experience and has probably been got right. Nevertheless, I have to point out—and I have to point it out to the noble Lord, Lord Ezra—that the practitioners who are involved in the compilation of the code—the Accepting Houses Committee; the Association of Investment Trusts Companies; the Association of British Insurers; the Committee of London and Scottish Bankers; and I could go on—are not exactly the people who stand out for the protection of the private investor. If the noble Lord, Lord Ezra, believes that the protection of the private investor should properly be left to a panel constituted of representatives of those institutions, all I can say is that I am very surprised to hear that sentiment come from the Liberal Front Bench.

Lord Ezra

My Lords, as reference has been made to the Liberal Front Bench, perhaps I may reply on its behalf. We believe not only that the panel has worked quite successfully in the past 20 years, but that it is in its own interest and in the interest of those it represents that it should continue to do so; and that is a very big motivating factor.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord, Lord Ezra, for explaining what the Liberal Front Bench feels about this. Indeed, the panel has worked well, and at no stage in any debate, as I know the noble Lord, Lord Lucas, recognises, have I ever tried to criticise the performance of the panel. Nevertheless, as the noble Lord, Lord Hacking, pointed out, we are going into a new era. We are going into an era where there will be a statute, and the statute makes detailed rules.

Here I come to a point that the noble Lord, Lord Lucas, made—

Lord Boardman

My Lords, would the noble Lord accept from me, as one who sits on that panel from time to time, that investor protection is the overriding consideration of all the members of the panel?

Lord Williams of Elvel

My Lords, I am most grateful to the noble Lord, Lord Boardman. He quite simply bears out what is said in the introduction to the code—indeed, equity between different classes of investor. I have no doubt that this is what the panel has in mind and has had in mind.

The point I am making is that we are setting up a statute which has in mind a specific purpose, protection of the investor, and it is not enough in my view simply to say that the record of the panel is good and therefore the panel has to remain as it is. The statute will cut across the operations of the panel and the operations of the code. In my view the authority of the panel itself, as I said in introducing the amendment, will be diminished. There will, after all, be no immunity for members of the panel. We have talked a lot about immunities for SROs and RPBs.

The code will not be subject to the Director General to see whether it is conducive to restrictive practices or anything else.

Above all, the only sanction that the code has—I shall read it—is as follows: The Code has not, and does not seek to have, the force of law, hut those who wish to take advantage of the facilities of the securities markets in the United Kingdom should conduct themselves in matters relating to takeovers according to the Code. Those who do not so conduct themselves cannot expect to enjoy those facilities and may find that they are withheld". We have been debating for the last few weeks a system of authorisation by statute. If an authorised person offends against the code, who will decide whether he should have his authorisation revoked or suffer a reprimand; what is the force of the reprimand if he is licensed to conduct his authorised business by the statute? If there is no sanction of that sort on authorised persons from the code, it is my belief that the statute will undermine the authority of the panel.

We have spent some time on this amendment, and I do not want to keep your Lordships too long. The fact that the panel has operated successfully for the last 18 years since 1968 should not blind your Lordships to the fact, as pointed out by the noble Lord, Lord Hacking, that we are entering a new era, and in our view, the two systems cannot ride side by side. Protection of investors is indivisible. It is impossible to separate one form of investment activity from another and put them into pigeon holes.

In pressing the amendment, I am asking your Lordships to play the traditional role of the House in the protection of those who are not able fully to look after themselves. As I said earlier, in my view the takeover business is one that is properly and rightly, and possibly sensibly, conducted by professionals. It is a City business. I am asking your Lordships to look wider and to give the protection that the investing public requires. I very much hope that your Lordships will give it. They require it, they deserve it, and I believe that we should give it to them.

3.45 p.m.

Lord Diamond

My Lords, the reasons that I wish to support what my noble friend Lord Ezra has said out of his deep knowledge of these matters on the Bill and the reasons that I think the Government are right are three in number and are very brief.

The first is that I regard the change in circumstances—and it is common ground between all sides that the panel has worked well for 20 years—as an argument against the amendment. The change in circumstances means that there is a huge area where flexibility that used to apply will no longer apply. To say that the area of flexibility is so limited that it should be totally eliminated is not an argument that appeals to me. Let us keep this one tiny area of flexibility which has worked so well over 20 years. That is the first point.

The second point is a smaller one and, therefore, I shall cut it out.

The third is the major one. The noble Lord, Lord Williams of Elvel, keeps on asserting that this is a request for reserve powers and, if one has doubt about the argument one way or the other, surely it is the wiser course to take these powers in case. It is not an amendment for reserved powers, for powers in the future. It is an amendment directed towards securing present powers in this Bill as it is going through Parliament—present powers that can be used in the future, that everyone knows can be used in the future, and that are a signal by Parliament saying: We are not satisfied that the code that we have at present works well, we are not satisfied with this panel, we must prepare something different to replace the panel.

That is the message if we accept the amendment. We have no reason to do that; we have every reason to do the opposite.

Lord Lucas of Chilworth

My Lords, with the leave of your Lordships' House, I wish to respond to one or two of the points that have been newly made as distinct from made in the opening remarks. The noble Lord, Lord Hacking, contrary to his exact words that the City of London was regulated, I am sure will accept that it has in fact been self-regulatory, and in this regard there is a little difference. If circumstances have changed as a result of what he foresees, he believes that these reserve powers should be made available. What he is saying is in fact exactly what the noble Lord, Lord Diamond, has said—that he wants the powers now because there are changes.

I was surprised, if I may say so with the greatest respect, that a man like the noble Lord, Lord Williams, with his immense knowledge of and practice in the City of London, should at this time suddenly decide that the Takeover Panel will collapse. He said that he thinks it will collapse. I find it quite extraordinary for a man of his experience to undermine that which has stood the test of time for some 18 or 20 years.

The noble Lord spoke about the takeover code not being subject to any control. He said that it was not subject to scrutiny under the Restrictive Trade Practices Act. He will know that this is a special exemption for the code from the Restrictive Trade Practices Act and was, in fact, conferred by a Labour government. The noble Lord and his noble friends should take that to their credit. If the exemption—which again the noble Lord appears to suggest might be abused or might not work properly—were abused or did not work properly it could he reviewed, as he knows. I suggest, therefore, that on those grounds his argument falls.

The noble Lord's analogy to his sheep farm in Wales was rather amusing. He said that if he did not repair the wall that was broken down the sheep would jump through it. What I am saying to him, and what I believe the noble Lords, Lord Ezra and Lord Diamond, were saying is that the Takeover Panel's walls have not broken down. There is no question of anybody jumping through. Nobody has been able to jump through for 18 years. By large, the panel's rules and rulings are observed and obeyed. My understanding is that, so concerned are those who engage in takeover matters to observe not only the letter but the spirit of the rules, advice is frequently sought. If we upset that kind of arrangement we shall end up by having references, via the Bill, to the courts, which will be a splendid opportunity for all the City lawyers and other lawyer people, and goodness knows how long that will take. That could be positively to the disadvantage of existing and potential investors.

The noble Lord, Lord Williams, argued that we might need amending legislation if the Takeover Panel's arrangements broke down completely. Not for one moment do I see the collapse of the Takeover Panel. If that were a serious threat the government of the day—and it will be a Conservative government—will have to see what remedies are available. More than likely, of course, legislation may be needed, but as I have already intimated there are many issues which will then have to be considered. I can see no reason to suppose that any legislation which may be required will take up anything like the time that this Bill has taken. I repeat that one of the reasons why we have taken so much time is that we have kept the door open to give full and proper consideration to all the interests involved. If there is a need for legislation I have no doubt that it would be agreed legislation and could be dealt with extremely quickly.

Finally, I must say again that we are not convinced that the code should he made statutory, nor that there should be reserve powers. I believe that that would ultimately—and the ultimate would not be very far away—lead to a statutory involvement. This would completely undermine—

Lord Diamond

My Lords, I am sorry to interrupt the noble Lord. He said that he was on his final point but he has said nothing about a matter on which I believe the Government should express a view. I should be grateful if the noble Lord would give his view on the suggestion that members of the panel, who are connected in the main with large institutions, have not as a result of that any interest in the small shareholder.

Lord Lucas of Chilworth

My Lords, it is slightly invidious but let me refer to my noble friend Lord Boardman, if he will forgive me, as being a typical (sometime) member of the panel; and I can say that there is no justification in suggesting that the panel does not have the interests of all sides and all parties at heart. I believe that the past 18 years of operation of the Takeover Panel have demonstrated quite conclusively that the interests of all parties to a takeover are forefront in the minds of members of the panel.

Baroness Turner of Camden

My Lords, can the noble Lord say that the interests of employees are always taken care of when the panel considers takeovers? That is a matter of great concern to these Benches.

Lord Lucas of Chilworth

My Lords, I do not want to be flippant with the noble Baroness, but we are all employees of one sort or another. It is no good her throwing her eyes up to heaven and shaking her head. We are all employees of somebody or other. If the noble Baroness wants to bring forward a different definition of "employee" than is my belief, I shall be happy to hear it.

We are talking, as the noble Lord, Lord Diamond, intimated, about the small shareholder. A small shareholder is more than likely an employee of someone or other. I can see no difference between "X" person and an "employee" or a shopkeeper, hairdresser, engineer, professor or Member of Parliament; indeed, many of your Lordships are employed by someone or other. Therefore, I do not believe that makes any difference at all.

We cannot agree that there should be reserve powers that ultimately would make the code statutory. That would undermine the current way of working by the panel. It would destroy the confidence which most people have and which the City has. We are always ready to continue to keep under review all these matters and to take whatever steps are necessary and practicable in the event that steps have to be taken.

Unless any noble Lord raises an issue to which I have to return, those are my final words and I invite your Lordships to reject the amendment standing in the name of the noble Lord, Lord Williams.

Lord Williams of Elvel

My Lords, I thought I had made my winding-up speech to this debate and that it was for the Minister subsequently to speak with the leave of the House. I now find that another speech has been made after my winding-up speech and, therefore, I claim the privilege, if your Lordships will allow me, of responding to some of the points that have been made.

I never suggested that the Takeover Panel was inimical in its present form to the interests of small investors. I specifically pointed out to the noble Lord, Lord Boardman, that the introduction to the code states that there should be equity of treatment among investors. I know full well that a Labour government exempted the takeover code from the Restrictive Trade Practices Act. All I am saying is that it is still exempt and, as I understand it, will remain exempt. I do not consider that to be a bad thing. I simply say that if that is the case, then it should be in the statute that it is exempt.

The noble Lord referred to my sheep. I do not believe that my walls are going to collapse, but from what I hear from my friends in the City I believe the Takeover Panel is very much overloaded. To get back to what the noble Lord, Lord Hacking, said, in the context of the new statutory framework I believe that the panel will find its authority undermined and that two systems cannot ride side by side. I have said enough. I shall press this amendment and ask for the view of your Lordships' House.

4 p.m.

On Question, Whether the said amendment (No. 1) shall be agreed to?

Their Lordships divided: Contents, 69; Not-Contents, 125.

DIVISION NO. 1
CONTENTS
Ampthill, L.	Brockway, L.
Ardwick, L.	Bruce of Donington, L.
Bernstein, L.	Campbell of Eskan, L.
Birk, B.	Carmichael of Kelvingrove, L.
Blyton, L.	Clancarty, E.
Bottomley, L.	Cledwyn of Penrhos, L.
Briginshaw, L.	Collison, L.

David, B.	Merrivale, L.
Davies of Penrhys, L.	Mishcon, L.
Dean of Beswick, L.	Molloy, L.
Denington, B.	Morton of Shuna, L.
Edmund-Davies, L.	Nicol, B.
Elwyn-Jones, L.	Northfield, L.
Ennals, L.	Oram, L.
Fitt, L.	Paget of Northampton, L.
Gallacher, L. [Teller.]	Phillips, B.
Galpern, L.	Pitt of Hampstead, L.
Graham of Edmonton, L.	Ponsonby of Shulbrede, L. [Teller.]
Hacking, L.
Halsbury, E.	Prys-Davies, L.
Hayter, L.	Serota, B.
Howie of Troon, L.	Shannon, E.
Hughes, L.	Shepherd, L.
Jacques, L.	Silkin of Dulwich, L.
Jeger, B.	Stallard, L.
Jenkins of Putney, L.	Stewart of Fulham, L.
Kilbracken, L.	Stoddart of Swindon, L.
Kissin, L.	Strabolgi, L.
Leatherland, L.	Taylor of Mansfield, L.
Llewelyn-Davies of Hastoe, B.	Turner of Camden, B.
Lloyd of Hampstead, L.	Underhill, L.
Lovell-Davis, L.	Wedderburn of Charlton, L.
McCarthy, L.	White, B.
McIntosh of Haringey, L.	Williams of Elvel, L.
Mellish, L.	Wilson of Rievaulx, L.

NOT-CONTENTS
Ailesbury, M.	Hanworth, V.
Airedale, L.	Harmar-Nicholls, L.
Allerton, L.	Harris of Greenwich, L.
Amherst, E.	Harvington, L.
Attlee, E.	Henderson of Brompton, L.
Auckland, L.	Hesketh, L.
Aylestone, L.	Hives, L.
Banks, L.	Home of the Hirsel, L.
Bauer, L.	Hood, V.
Beaverbrook, L.	Hooper, B.
Belhaven and Stenton, L.	Hylton-Foster, B.
Beloff, L.	Kaberry of Adel, L.
Belstead, L.	Kennet, L.
Bessborough, E.	Kilmarnock, L.
Blake, L.	Kimball, L.
Boardman, L.	Kinloss, Ly.
Bonham-Carter, L.	Kinnaird, L.
Boyd-Carpenter, L.	Knollys, V.
Brabazon of Tara, L.	Lane-Fox, B.
Bruce-Gardyne, L.	Lauderdale, E.
Butterworth, L.	Layton, L.
Caithness, E.	Limerick, E.
Cameron of Lochbroom, L.	Lindsey and Abingdon, E.
Carnock, L.	Long, V.
Clitheroe, L.	Lothian, M.
Coleraine, L.	Lucas of Chilworth, L.
Constantine of Stanmore, L.	Luke, L.
Cottesloe, L.	Lyell, L.
Cox, B.	Macleod of Borve, B.
Craigavon, V.	McNair, L.
Cullen of Ashbourne, L.	Mancroft, L.
Davidson, V. [Teller.]	Manton, L.
De Freyne, L	Margadale, L.
Denham, L. [Teller.]	Mersey, V.
Denning, L.	Molson, L.
Diamond, L.	Morris, L.
Duncan-Sandys, L.	Newall, L.
Effingham, E.	Nugent of Guildford, L.
Ellenborough, L.	Pender, L.
Elliot of Harwood, B.	Peyton of Yeovil, L.
Elton, L.	Portland, D.
Ezra, L.	Rankeillour, L.
Faithfull, B.	Reay, L.
Fortescue, E.	Ritchie of Dundee, L.
Fraser of Kilmorack, L.	Rodney, L.
Gainford, L.	Sainsbury, L.
Gardner of Parkes, B.	St. Davids, V.
Gridley, L.	Sandford, L.
Hailsham of Saint Marylebone, L.	Seear, B.
	Seebohm, L.
Hampton, L.	Selkirk, E.

Skelmersdale, L.	Vickers, B.
Somers, L.	Vivian, L.
Stedman, B.	Ward of Witley, V.
Sudeley, L.	Westbury, L.
Terrington, L.	Whitelaw, V.
Teviot, L.	Wigoder, L.
Thorneycroft, L.	Winchilsea and Nottingham, E.
Tordoff, L.
Tranmire, L.	Wise, L.
Trefgarne, L.	Wolfson, L.
Trumpington, B.	Wynford, L.
Tryon, L.	Young, B.
Vaux of Harrowden, L.

Resolved in the negative and amendment disagreed to accordingly.

4.8 p.m.

Lord Lucas of Chilworth moved Amendment No. 2: Page 2, line 26, leave out from ("amendments") to end of line 27 and insert ("conferring powers on the Secretary of Sate, whether by extending or modifying any provision of that Schedule which confers such powers or by adding further such provisions.").

The noble Lord said: My Lords, I beg to move Amendment No. 2 standing in my name on the Marshalled List. This amendment would restore the wording of Amendment No. 67 which I moved during our consideration of this Bill on Report. The reason this wording is necessary is that Clause 2 as drafted, or as now amended, would not permit the making of an order which conferred powers on the Secretary of State. The effect would be that an order could not, for instance, confer power on the Secretary of State to grant permissions under paragraph 23 of Schedule 1 in relation to transactions not covered by paragraph 12 or in circumstances different from those specified in paragraph 23. I hope that the noble Lord, Lord Morton of Shuna—because it was with that noble Lord opposite that I had a little misunderstanding—will recognise this as a technical reason why the wording of the amendment is preferable to the amendment that he moved on Report. I beg to move.

Lord Williams of Elvel

My Lords, I say on behalf of my noble friend Lord Morton of Shuna that we on this side are happy that the Government have introduced this amendment, and on this occasion we find ourselves in total agreement with the noble Lord. We shall not oppose the amendment.

On Question, amendment agreed to.

The Chairman of Committees

My Lords, I have to point out that if Amendment No. 2A is agreed to I cannot call Amendment No. 3.

Clause 5 [Agreements made by or through unauthorised persons]:

Lord Hacking moved Amendment No. 2A:

Page 4, line 7, leave out paragraph (a) and insert— ("(a) in a case within paragraph (a) of that subsection, that the person mentioned in that paragraph either—

1. i) reasonably believed that his entering into the agreement did not constitute a contravention of section 3 above; or
2. (ii) did not know that his entering into the agreement constituted a contravention of section 3 above but in so doing acted honestly and reasonably;").

The noble Lord said: My Lords, to give your Lordships the history of the matter, this amendment relates to Clause 5. In response to representations that I made in Committee, the Government came back on Report with amendments to Clause 5. During the course of the Report stage, the noble Lord, Lord Ezra, tabled an amendment to the Government's amendment to Clause 5. The amendment, therefore, that I have now tabled is the same as that tabled by the noble Lord, Lord Ezra, on Report. It would have been moved today by the noble Lord, Lord Ezra, if the CBI, which is anxious about the matter, had been able to contact the noble Lord at the end of last week. With its failure to contact him and in the spirit of helpfulness that I have always tried to show to the House during the course of this Bill, I agreed to table the amendment in his place.

I am happy to say that the noble Lord. Lord Ezra, supports the amendment. I believe that he will say a few words when I have moved it. Perhaps I can take the matter shortly. After the Bill comes into force, it will be unlawful for any person to carry on investment business in the United Kingdom unless he is an authorised or exempted person under the Bill. I refer to Clause 3.

Under Clause 5 any agreement entered into by an unauthorised person or by an authorised person with an unauthorised person is unenforceable. However, the courts have been given discretion in certain circumstances to rule that such an agreement is enforceable. That provision is set out in subsection (3). With regard to an unauthorised person, the provision provides that if he reasonably believed that in entering into the agreement he was not acting unlawfully—in other words, he believed that the transaction into which he was entering was not investment business which fell under the terms of the Act—and if it is "just and equitable", the court is given the power to allow that agreement to be enforceable.

The lacuna here is that there is a second circumstance when an unauthorised person may in good faith have entered into an agreement believing it to be lawful. That is when he did not know that the investment business that he was entering into contravened the terms of the Act. I am anxious about that second category and so are the CBI and the Association of Corporate Treasurers. That is why the noble Lord, Lord Ezra, tabled the amendment on Report and why I am tabling it again on Third Reading. I beg to move.

Lord Ezra

My Lords, I support the noble Lord, Lord Hacking. It is true that on Report I moved an amendment to this effect because under this Bill, which is of such great importance for the conduct of the country's financial affairs, we must be fair to all parties. Because of the complexities of the provisions as to who should be authorised and who not, we feel that those who may conduct affairs believing themselves to be fully entitled to, should nevertheless not lay themselves open to any penalties under the Bill. It is to make that point absolutely clear, and to give guidance to the courts, that the amendment has been moved. I hope that the Government will be able to accept it.

4.15 p.m.

The Lord Advocate (Lord Cameron of Lochbroom)

My Lords, I am obviously imbued with the same spirit of helpfulness which the noble Lord, Lord Hacking, and other noble Lords have shown throughout our deliberations on this Bill. However, in this case I still feel unable to accept the amendment. I recognise that some people are concerned that a person who was simply unaware that the Bill applied to him would not be able to take advantage of that defence.

Having taken advice, I must repeat my belief that. on the existing wording of the clause, the person who did not know that he had to be authorised and whose ignorance was reasonable will he held by a court to have satisfied the requirements of paragraph (a); the court may then allow an agreement into which that person has entered to he enforced, if that is just and equitable in the circumstances of the particular case.

I remain somewhat unhappy about the wording of the amendment in case it could be interpreted as allowing persons whose ignorance of the authorisation requirement was reasonable but whose conduct in entering into an investment agreement was honest and reasonable, to have their contracts enforced. I accept that that is not a probable interpretation but it is one that is open particularly if a different form of words is used from that which is used elsewhere in the Bill. I refer to Clause 132.

The noble Lord will recognise that the amendment is tabled only because of fears about the interpretation of the existing wording. I do not believe misinterpretation will occur and regard it as extremely improbable.

Much effort has been expended in drafting this clause, and the first Chapter on this Part of the Bill and Schedule 1 so that inadvertent transgressions of the Bill's provisions for authorisation are excused while the criminal and careless continue to have the sanctions of Clause 5 applied against them.

I do not believe that the wording of the amendment will change the court's view in actual cases because I believe that point is already included within the existing form of words. For those reasons, I invite the noble Lord to withdraw the amendment. If he were to press it, I would invite the House to reject it.

Lord Hacking

My Lords, unless any other noble Lords wish to speak, it is my intention to withdraw the amendment. I wanted further to press the matter because it is of concern outside your Lordships' House. I therefore felt it right to bring the matter again to the attention of your Lordships and the noble and learned Lord the Lord Advocate.

I have just a couple of observations to make before I withdraw the amendment. Ignorance or the "I do not know" defence is available for the authorised person under Clause 5(3)(b), while it is not available for the unauthorised person under paragraph (a). This is the point to which my amendment is directed. There is this lack of parity.

If my argument is correct there is a lacuna in the Bill. The noble and learned Lord recognises that we are dealing with a point with which we all have the intention of dealing. There is no point of principle between the noble and learned Lord and myself. Thus, if the Government are wrong there will be a blocking out of this important provision. On the other hand, if I am right, no harm will be done by adding an extra provision, in a couple of sentences, in the Bill.

I have made my submissions. This matter does not have to be finished at this stage because, technically, your Lordships are now considering amendments to amendments which have already been made to the Bill and those amendments have to go to another place to he considered. So there is still time, even at this late hour, for the Government to give further consideration to the point. I have made my observations. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Cameron of Lochbroom moved Amendment No. 3: Page 4, line 8, leave out ("subsection") and insert ("paragraph").

The noble and learned Lord said: My Lords, this is a technical amendment that revises the drafting in Clause 5. I beg to move.

On Question, amendment agreed to.

Clause 16 [Professional bodies]:

Lord Cameron of Lochbroom moved Amendment No. 4: Page 12, line 34, leave out ("this section") and insert ("section 15 above").

The noble and learned Lord said: My Lords, this, too, is a drafting amendment to cover the situation that arose when Clauses 15 and 16, which were originally one clause, were divided. I beg to move.

On Question, amendment agreed to.

Clause 47 [Misleading statements and practices]:

Lord Cameron of Lochbroom moved Amendment No. 5: Page 33, line 41, after ("statement") insert (", promise or forecast").

The noble and learned Lord said: My Lords, in moving this amendment, it may be for the convenience of the House if I speak also to Amendments Nos. 6, 19 and 20. These are drafting amendments to Clauses 47 and 133 which apply to statements, promises or forecasts, as made clear in the first reference in each clause. Unfortunately, subsequent references are made to statements alone. To put the matter beyond doubt, these amendments are necessary. I beg to move.

On Question, amendment agreed to.

Lord Cameron of Lochbroom moved Amendment No. 6: Page 34, line 2, after ("statement") insert (", promise or forecast").

On Question, amendment agreed to.

The Chairman of Committees

My Lords, I have to point out that if Amendment No. 7 is agreed to, I cannot call Amendment No. 8.

Lord Morton of Shuna moved Amendment No. 7: Page 34, line 6, leave out subsections (2) and (3) and insert:

("(2) Any person who does any act or engages in any course of conduct which creates a false or misleading impression as to the market in or the price or value of any investments is guilty of an offence if he does so for a dishonest purpose.").

The noble Lord said: My Lords, this amendment is to delete subsections (2) and (3) of Clause 47 and to insert as a new subsection (2), Any person who does any act or engages in any course of conduct which creates a false or misleading impression as to the market in or the price or value of any investments is guilty of an offence if he does so for a dishonest purpose".

This matter was extensively debated on Report, although the amendment now proposed is different in that it seeks to delete subsection (3) as well as subsection (2) and to substitute the new subsection. Subsection (2) as at present in the Bill is, in my submission, very difficult to understand. It starts by referring to "any person". This makes clear that it is not dealing with authorised persons only, but with any person. It goes wider therefore than authorised or exempt persons. The subsection creates an offence which, under subsection (6), carries the possibility, on conviction, of imprisonment not exceeding seven years, or a fine, or both. It is therefore a serious and substantial offence.

Subsection (3) provides a defence. It is apparently the only defence. The subsection states: In proceedings brought against any person for an offence under subsection (2) above it shall be a defence for him to prove that he reasonably believed that his act or conduct would not create an impression that was false or misleading as to the matters mentioned in that subsection".

What is it that is attacked? According to subsection (2), Any person who does any act or engages in any course of conduct which creates a false or misleading impression as to the market in or the price or value of any investments is guilty of an offence if he does so for the purpose of creating that impression", and, if I may shorten the wording, thereby induces other people to deal in shares. This would apply, for example, to a journalist writing for the City pages. If he creates an impression that shares in some company are going up or that someone is going to make a takeover hid, then, as I read this subsection, it does not matter whether he believes this to be true or false, but if something else happens and the shares do not go up or the company does not make a takeover bid, he is guilty of an offence for which he may be imprisoned for seven years. It is an extraordinary concept. Again, if the chairman of a company, speaking about his company's prospects, says that the company is doing well but then later, when the company's results are published, it has not done as well as the City expected, is he committing an offence, even though he may have been totally honest? In both cases, they have created an impression. As everyone knows, if a certain Sunday newspaper journalist writes up a share, that share may change in value. He has written for the purpose of creating an impression; and presumably a journalist does so for the purpose of inducing other people to deal in the shares. The defence with which the person charged with this offence is provided is not that he honestly believed in the facts that he put forward. The defence is only, that he reasonably believed that his act or conduct would not create an impression that was false".

What does that mean? Does it mean that he believed that the takeover bid was coming, although, in fact, it was not? It transpires that the Hanson Trust did not intend to buy over a particular company although he believed that it did. Where is his defence? Nowhere in subsection (2) is the word "dishonestly" used. It is to add this word and to clarify what is meant by the subsection that I put forward this amendment. It is clear that the clause should be concerned with dishonest conduct and fraud. It should not be concerned with someone giving advice honestly, however mistaken he may be. But that does not appear to be a defence.

The word "dishonestly" appears twice in Clause 47(1), in both paragraphs (a) and (b). It is the normal rule of statutory interpretation by the court that if a section has a particular word in one subsection but omits it from another, the omission is deliberate. That is, I suggest, the position here. The noble and learned Lord, Lord Cameron of Lochbroom, referred at Report stage to the report of the committee of the noble and learned Lord, Lord Roskill, on fraud trials. As a result. I have been in touch with the noble and learned Lord, Lord Roskill. Unfortunately, the noble and learned Lord was not able to he present at Report stage, and he is not able to be present today. He has said that if he had been here on 16th October at Report he would have voted for the amendment I then put forward, and that, unless he were persuaded to the contrary, if he had been able to be here today, he would have voted for my amendment.

The noble and learned Lord said that there was nothing in the report of the committee which he chaired on the fraud trials that was intended to suggest that the word "dishonesty" was inappropriate. As I have endeavoured to suggest, by using it in Clause 47(1) the inference is perhaps there for the court to draw that subsection (2) does not imply dishonesty. I would suggest to your Lordships that it quite clearly does not.

Since the noble and learned Lord, Lord Roskill, expressed his view which he conveyed to the noble and learned Lord the Lord Advocate, the noble and learned Lord the Lord Advocate has done me the courtesy of indicating what this section was aimed at. As I understand it, it is aimed at something known as "boilerhouse operations". I am not an expert on boilerhouse operations, but these are described by those who should know as classic frauds. If it is a classic fraud it is dishonest. In any definition of fraud there is the inherent idea of dishonesty. It is the essential element in fraud. If what is aimed at by this subsection is fraud it would be much easier to so indicate by saying that it is dishonest.

The report of the noble and learned Lord, Lord Roskill, says at paragraph 3.3: The criticisms of the substantive law which we received took two forms. Some were that the law was obscure. Incomprehensible laws lead to confusion, injustice and delay. They place an added burden on the judge who has to interpret the law and upon the jury who have to apply it. Moreover, where the law is open to doubt, this may well give rise to appeals against conviction". I would suggest that that passage applies to Clause 47(2). If, as I would suggest—and as I believe the noble and learned Lord the Lord Advocate understands—this subsection is aiming at fraud, I would remind him that at Report stage at col. 1004 of the Official Report on 16th October, the noble and learned Lord the Lord Advocate, in talking about the report of Lord Roskill, referred to: the existing problems which the court had found when they were asked to consider what was meant by the terms 'fraud' and 'acting fraudulently' and the synonymous concept of dishonesty". If dishonesty is the synonymous concept, what is the objection to putting it squarely in the subsection? Why not make it absolutely clear to people who are concerned about what advice they may give that, as long as they are honest, they will not he liable to seven years' imprisonment? I should have thought that all noble Lords would he in favour of that.

As I understand the purpose of this Bill, and as we have all said on many occasions, it is for the protection of the public. I should have thought that all noble Lords would agree that one of the inherent and necessary elements of protection of the public is that those who have the knowledge to give advice should be able to give that advice to members of the public honestly, fairly and freely, without being under threat that if they make a mistake they may go to gaol for seven years. In my submission the amendment I propose deals with that. I would suggest that it puts the burden of proof where it has always belonged in the United Kingdom—on the prosecution. It is open to doubt whether under subsection (3) as it stands it is for the person accused to establish his innocence. The presumption of innocence is something which the courts of this country, and this House and another place, have always fought to defend. It would be most inappropriate suddenly to slip into this Bill a radical change. I beg to move.

Lord Edmund-Davies

My Lords, I venture to speak shortly in support of this amendment. I take a rather different view of the matter from the noble and learned Lord, Lord Morton of Shuna. It seems to me quite clear that the burden of proving guilt under Clause 47(1) is totally different from that under subsection (2). There is no doubt about this. Under Clause 47(1) the Crown has to establish knowledge of the misleading, false or deceptive nature of the statement, promise or forecast before there can be any conviction. That is absolutely clear in terms. Under subsection (2), as has already been pointed out, there is no reference at all to the necessity for knowledge.

Combined with subsection (3), that leads to this conclusion. One has a person who does an act, or engages in any course of conduct—let me interrupt myself by going into parenthesis for a moment. Why there should be any difference between a person making a statement, promise or forecast, and one who does an act or engages in a course of conduct, with regard to heinousness, I do not know. I seek some enlightenment on that. I can see none. However, it is quite clear from subsection (2), combined with subsection (3), that a person who does an act or engages in any course of conduct which creates a misleading impression as to the market, and so on, is guilty.

That is all the Crown have to prove. If he does an act or engages in a course of conduct which creates a false or misleading impression, that is enough. Guilt is there, unless and until he can establish not only that he honestly believed that no such heinousness or blameworthiness attached to his conduct, but further that his belief—already ex-hypothesi an honest belief—is also a reasonable belief. Why one should differentiate to that very substantial and grave distinction between Clause 47(1), the making of a statement, and Clause 47(2), the doing of an act, I do not know. There ought to be none. There is none necessarily in the nature of the heinousness.

I have been giving some thought to the matter. Accordingly, I shall support this amendment because it makes clear that which is right and fair; namely, that for doing an act, just like making a statement, a person must be shown to have knowledge of the falsity or misleading nature of the acts or conduct that he has perpetrated. I think that emerges with clarity from the proposed amendment, if the person's conduct is for a dishonest purpose. There is no rational distinction between the offence created by subsection (1) and that created by subsection (2). I support the amendment.

Lord Ezra

My Lords, after the noble and learned Lord, Lord Edmund-Davies, I should like to speak also in support of the amendment. There is an inconsistency, as the noble and learned Lords, Lord Morton and Lord Edmund-Davies pointed out, between subsection (1) and subsection (2). The views read out to us by the noble Lord, Lord Morton, quoting the noble and learned Lord, Lord Roskill, confirm that view. The evidence from eminent legal personalities is, I think, overwhelming. Therefore in the interests of proper safeguards there should be a consistency of wording throughout this clause of the Bill. I very much hope that, with that endeavour in mind, the Government will be prepared to accept the amendment.

Lord Howie of Troon

My Lords, I should like to speak briefly in support of my noble friend Lord Morton of Shuna, not as a financial expert, nor as a lawyer, but as a journalist. The subject of journalism was raised by him in his opening remarks. At one point the noble Lord used a word which I think is the key to my support for his amendment. He used the word "mistaken". Journalists are admirable people in many ways, though they do have their shortcomings, of which we are all aware. They are capable from time to time of being mistaken, and it seems to me that the clause as it stands at the moment does not allow room for honest error. I think that that is a weakness in it.

We all know that there are two kinds of mistake. One may be due to negligence, in which case it might be culpable. However, in regard to a financial situation a journalist may very readily make an assessment which was honestly made and yet was wrong. Being wrong is no doubt a very bad thing; but I do not think that being wrong is a sufficient reason for going to jail for seven years. That is a longish time! As my noble and learned friend Lord Elwyn-Jones will recall, in our debate the other evening we had a good deal of discussion on another matter about the length of sentences. Five years was thought to be sufficient for quite a different misdemeanour. In this situation people are being threatened with imprisonment for up to seven years for being mistaken, unless they can prove their innocence. I do not see that as being in accord with our general traditions of justice.

I think my noble friend, Lord Morton of Shuna has a good deal of strength in the arguments and the amendment that he has put forward. Unless the Minister can convince us otherwise, I think my noble friend ought to be supported.

4.45 p.m.

Lord Hacking

My Lords, perhaps we may consider the following. Apart from the real difficulty that magistrates will have in understanding subsection (2), and apart from the real difficulties that judges at Crown Courts will have in directing juries as to the meaning of subsection (2), and quite apart from the sheer temptation that the noble Lord, Lord Morton of Shuna, offers us in the clarity of meaning of his amendment, for reasons which have been advanced by the noble and learned Lord, Lord Edmund-Davies, and other noble Lords, there is a fundamental defect in subsection (2). It is that if a person is being accused of creating a false and misleading impression as to the market in, or price or value of an investment, and is guilty of an offence, the prosecution must prove that he acted dishonestly.

Lord Cameron of Lochbroom

My Lords, may I say at the outset that the purpose of this subsection is to cover the necessity to have on the statute book a clear criminal offence which outlaws market manipulation. Subsections (2) and (3) of Clause 47, in the form in which they have been committed to us by another place, are intended to give a clear message to the practitioners in the financial markets that the deliberate undertaking of an act or course of conduct which gives a false or misleading impression, which deceives investors as to the price or value of any investments, will be prohibited. These subsections are intended to provide those responsible for enforcing the law with a better means to raise a successful prosecution where markets have been manipulated and investors have been deceived.

I am conscious that there has been much criticism, both in this House and elsewhere, that the perpetrators of fraud have not been prosecuted with sufficient vigour and that the law against fraud was not being upheld. The Government have responded positively to that criticism. The White Paper which set out the proposals for the regulation of the financial markets published in January 1985 referred specifically to the Prevention of Fraud (Investments) Act 1958. That White Paper said that the Act no longer offers an adequate statutory framework for the protection of investors because of its incomplete coverage and the difficulties of enforcing its outdated provisions". I refer particularly to paragraph 2.14. The White Paper specifically proposed that the legislation which we are now debating should redefine certain existing criminal offences. Subsections (2) and (3) are intended to implement that policy.

It may help the noble Lords who have spoken to know more about the Government's intentions in respect of Clause 47. For example, the noble Lord, Lord Morton, in his concluding remarks on the Report stage debate on this clause, referred to a statement or forecast which was false. I refer to col. 1004 of Hansard for 16th October. Perhaps I may just draw to the noble Lord's attention (because he seemed to follow the same road today) to the fact that statements and forecasts are dealt with in subsection (1). That is abundantly plain because we have just made amendments to deal with this.

The offence in Clause 47(1) is analogous to that in statutes of a similar kind. For instance, Section 13 of the Prevention of Fraud (Investments) Act 1958, Section 39 of the Banking Act 1979 and Section 73 of the Insurance Companies Act 1982. Subsection (2) extends the offence to acts or courses of conduct. Clause 47(2) would make it an offence for a person to offer to acquire an investment knowing—but not publicising the fact—that an order of substantially the same size at substantially the same price for the disposal of the investment has been or will be entered into by or for the same person or some other person when the purpose of the offer is to create a false or misleading appearance with respect to the market price of the investment.

An example of a course of conduct which Clause 47(2) would outlaw is trading in an investment where the trader ensures that there is no change in beneficial ownership in order to ramp the price and to give false or misleading impression of active trading in the investment. These are the classic frauds which are perpetrated by the boilerhouse operation. Investors then are misled by the appearance of keen market interest and frenetic trading and induced to buy shares which only later turn out to have little or no marketability or value.

The Bill aims to preserve and promote the integrity of Britain's financial markets. Investors in such markets, particularly the commodity and financial futures markets, may be greatly influenced by prevailing and anticipated market conditions. For confidence to be maintained in these markets, therefore, market integrity is paramount and the severity of Clause 47(2) is designed to deter market manipulation. The clause therefore outlaws market manipulation which takes the form of creating a false or misleading price or value of an investment.

Let me take up the point that the noble and learned Lord, Lord Edmund-Davies, raised as to what the prosecution would have to show to establish at least the offence. Of course there would then be the defence. The first thing the prosecution would have to show was that a person did the alleged act or engaged in the alleged course of conduct; secondly, that the act or course of conduct actually created a false and misleading impression as to the market in or the price or value of any investments; thirdly, that the person did the act or engaged in the course of conduct deliberately to create the impression as to the market in or the price or value of any investments; and, finally, that the person accused intended by all that he had done to induce another to do or refrain from doing a thing mentioned in the second part of Clause 47(2).

On that state of facts I think that the noble and learned Lord might say that you had got as close as you might to describing a fraud. But we recognise that, even given that state of facts as having been established by proof—and of course proof beyond reasonable doubt, as I think the noble and learned Lord would remind us—there are exceptional circumstances where a person who undertook this reasonably believed that his act or course of conduct would not create an impression that was false or misleading as to the market, or price, or value of any investments.

I think we all know that one of the most difficult things is to establish a motive. It is for these reasons that we take the view that it is proper then to provide the defence that appears in subsection (3). The defence gives the person accused the opportunity to show that he reasonably believed that that was the state of affairs.

The prosecution of this offence is restricted. The circumstances in which it is likely to arise are of course extremely complex. They are likely to involve acts and courses of conduct over a period, probably involving complicated arrangements to disguise the underlying objective. There will be difficult decisions about whether particular activities created a false and misleading impression. This is a matter which, rightly, the prosecution will have to prove beyond reasonable doubt, and that will not in itself necessarily be an easy task. The prosecution will also have to prove that the accused person intended to create the impression he did create and that he thereby intended to induce people to deal or not deal in investments.

We concluded that it would impose an undue burden if the prosecution also had to prove that the accused intended the impression to be false or misleading. On the other hand, the accused should not be regarded as having committed an offence if the false or misleading nature of the impression he had created was inadvertent. We therefore concluded that the right balance between the interests of investors and the interests of accused persons was to create a defence for a person who could prove that he had reasonably believed that his actions would not create a false and misleading impression.

I readily accept that in Clause 47(1) there is reference to "dishonestly". I have already pointed out where that particular offence comes from and of course its limit to statements. I would, however, point out that dishonesty is a matter of proof so far only as to dishonest concealment of material facts. In the case of a statement or forecast which is misleading, false or deceptive, it is required to prove that the person knew it to be misleading, false or deceptive. When one comes to "recklessness" it may be that the recklessness is dishonest or it may not be. I make it clear, however, that we are not dealing with that area. We are dealing with acts and courses of conduct.

Mention was made in the course of the argument, particularly by the noble Lord, Lord Morton, about two persons, the journalist and the director. I think reference was also made to advisers. The question of the journalist was also taken up by the noble Lord, Lord Howie of Troon. So far as the journalist is concerned he would have to undertake an act or a course of conduct which was done for the purpose of creating an impression (that impression being false and misleading) with the consequence that persons would be induced, and with the intention of inducing people, to do the things set out in subsection (2).

First, I understand that what a journalist usually does is to make a statement. Therefore on any view he would not, I should have thought, fall within the terms of subsection (2). It is also the response I would make in relation to the company chairman who makes a false statement. There again he would be perhaps covered by subsection (1) but certainly not by subsection (2), which is about market manipulation.

Even assuming that for some reason or other one could get him within the ambit of subsection (2) it would still be necessary to ask the question: does he create the impression for the purpose of inducing persons to deal?

Lord Howie of Troon

My Lords, I take the point that the noble and learned Lord makes about journalists, and I go a long way with him. But as I understand it here, a journalist may make a statement which creates a false or misleading impression, and he may do it for the purpose of creating that impression. My point was that he may try to create that impression and yet merely be wrong, merely be mistaken rather than dishonest. How then would he stand? If he was dishonest, it is right that he should be dealt with by the full rigour of the law, but if he is merely wrong I think the situation is somewhat different.

Lord Cameron of Lochbroom

My Lords, I am grateful to the noble Lord. I think in a sense I answered him when I was trying to set out what the prosecution would have to prove in respect of subsection (2). It is not just the question of his intention for the purpose of creating the impression. The subsection goes on, "of thereby inducing another person" to do certain things. It is the whole act. Leaving aside what I have said already, that would not be apt to apply to a journalist.

Perhaps I should respond to another part of what the noble Lord opposite said, because I accept that there may have been some misunderstanding of what I said in the House on Report. I want to make it clear that I was not suggesting that there was already a requirement to prove dishonest intent in subsection (2) and that the addition of the word "dishonesty" was therefore unnecessary. I agree that there is no such requirement, and I hope I have made it clear why I think that we have the balance right in dealing with the problem we are facing here.

Let me say finally to noble Lords, because it has been a point of substantial concern, that in an offence of this kind, carrying the risk of a substantial period of imprisonment in certain circumstances, what one has is in effect the proof of a state of facts and then for an accused person effectively to prove his innocence in the face of those facts. If it is a bad principle for the law to require that an accused person should have to prove the innocence of his purpose in the face of a charge that he had made a false or misleading statement, or if, indeed, as I have suggested, we are dealing with an act or a course of conduct, I would draw the attention of the noble Lord opposite to the terms of Amendment No. 23 on the Marshalled List, in the name of the noble Lord opposite, which proposes to add a new clause to follow Clause 151.

As I read that new clause, the effect would be that if it were proved that listing particulars were issued with an untrue statement included in them—that would be simply a matter of fact—then the person responsible for the particulars would be guilty of an offence, and I observe what follows, liable to imprisonment or a fine or both"— it would appear imprisonment without limit— unless he proves … that he had reasonable grounds to believe and did, up to the time of the issue of the particulars, believe that the statement was true". I do not doubt the concerns which the noble Lord had in putting forward this amendment, but it seems on the face of it that his new clause, which we shall debate later, specifically proposes that an accused person shall be guilty of an offence unless he proves certain matters, including that he believed the relevant untrue statement was true. It seems to me that we are really in precisely the same territory, particularly if the noble Lord opposite suggested that this was a serious offence. Equally, that would be a serious offence, and it was no doubt for that reason that he left the reference to liability to imprisonment without limit.

I fully recognise the concerns that noble Lords have expressed in speaking in this debate. We considered this matter very carefully before we reached the view that the offence should take the form which it does. I particularly point out to the noble Lord what we are seeking to strike at here: a kind of conduct which I think all noble Lords would regard as being unlawful and open to very appropriate and condign criminal sanctions. We believe that we have the balance correct, and for this reason if the noble Lord presses this amendment, I must invite the House to reject it.

5 p.m.

Lord Morton of Shuna

My Lords, I am very much obliged to the noble and learned Lord. Lord Edmund-Davies, and to the noble Lords, Lord Ezra, Lord Howie and Lord Hacking, for their support. However, certain of your Lordships placed on me the tag "learned"; I am not entitled to that.

Noble Lords

Shame!

Lord Morton of Shuna

My Lords, it may be a shame, but I am not entitled to it.

Lord Elwyn-Jones

Not yet, my Lords.

Lord Morton of Shuna

My Lords, perhaps I should deal first with the reference to Amendment No. 23 I am surprised that the noble and learned Lord the Lord Advocate did not recognise in that amendment Sections 70 and 71 of the Companies Act 1985, which is a consolidation Act, and the derivations are Sections 44 and 46 of the Companies Act 1948. No doubt it goes further back than that.

The principle of the issuing of prospectuses has always been that the person who puts forward a prospectus has to warrant the truth of it. That is all we are dealing with there. We are dealing with an entirely different situation in Clause 47. First, it concerns "any person" —not any "authorised person", not any "exempt person", but anybody at all who does any act. The noble and learned Lord the Lord Advocate implied that a statement, promise or forecast is not an act or a course of conduct. There is nothing in subsection (2) which suggests anything of the sort. There is no phrase such as "does any act, other than makes a statement, promise or forecast to which subsection (1) applies". With such knowledge of the law as I have I believe that "any act" could hardly be wider, and the making of a statement, a promise or a forecast is an act; it cannot be anything else. In my view of this clause the person who makes a statement, promise or forecast can be caught either under subsection (1) or under subsection (2), as the prosecutor chooses to catch him.

Lord Cameron of Loch broom

My Lords, would I be right in saying that the amendment proposed by the noble Lord contains these words likewise?

Lord Morton of Shuna

Yes, my Lords, certainly; but the amendment which I propose contains the vital words that a person is guilty of an offence, if he does so for a dishonest purpose". That is the key to it. What the noble and learned Lord is putting forward on behalf of the Government is that if an act is performed which has a particular result, however honest a person may be, he is guilty unless he can say that he reasonably believed that his act would not create a particular impression.

Let us take the journalist who believes that a company, having bought 14.9 per cent. of the shares in another company, is to make a takeover bid. He writes that up. He creates the impression in the market, and he does so quite clearly for the purpose of creating that impression—that is what as a financial journalist he is about. He does so for the purpose of inducing people to buy or sell, or whatever it may be. So he is guilty unless he proves that he reasonably believed that his act—writing that he believed the Hanson Trust or whatever intended to make a takeover bid—would not create that impression. That is a very odd way of putting it. Does he really believe that what he is writing in the press is likely to be disbelieved? It is an odd way of doing it.

I suggest in the light of the very formidable support I have had—I remind noble Lords that I had the very distinguished support of the noble Lord, Lord Renton, at Report on the drafting of this amendment—that the amendment I have pleasure in putting forward is very much clearer. The public would know where they are, the City would know where they are, and I commend the amendment to your Lordships.

5.9 p.m.

On Question, Whether the said amendment (No. 7) shall be agreed to?

Their Lordships divided: Contents, 94; Not-Contents, 100.

DIVISION NO. 2
CONTENTS
Airedale, L.	Blyton, L.
Amherst, E.	Bonham-Carter, L.
Ampthill, L.	Boston of Faversham, L.
Ardwick, L.	Bottomley, L.
Attlee, E.	Briginshaw, L.
Aylestone, L.	Brockway, L.
Beaumont of Whitley, L.	Carmichael of Kelvingrove, L.
Bernstein, L.	Cledwyn of Penrhos, L.
Birk, B.	David, B.

Davies of Penrhys, L.	Morton of Shuna, L.
Dean of Beswick, L.	Mulley, L.
Denington, B.	Nathan, L.
Diamond, L.	Nicol, B.
Donaldson of Kingsbridge, L.	Northfield, L.
Donoughue, L.	Oram, L.
Edmund-Davies, L.	Paget of Northampton, L.
Elwyn-Jones, L.	Phillips, B.
Ewart-Biggs, B.	Pitt of Hampstead, L.
Ezra, L.	Ponsonby of Shulbrede, L. [Teller.]
Falkland, V.
Gallacher, L.	Prys-Davies, L.
Galpern, L.	Ritchie of Dundee, L.
Graham of Edmonton, L.	St. Davids, V.
Hacking, L.	Seear, B.
Hampton, L.	Seebohm, L.
Hanworth, V.	Serota, B.
Harris of Greenwich, L.	Shannon, E.
Hayter, L.	Shaughnessy, L.
Howie of Troon, L.	Shepherd, L.
Hughes, L.	Silkin of Dulwich, L.
Hylton-Foster, B.	Somers, L.
Ilchester, E.	Stallard, L.
Jacques, L.	Stedman, B.
Jeger, B.	Stewart of Fulham, L.
Rennet, L.	Stoddart of Swindon, L. [Teller.]
Kilbracken, L.
Kilmarnock, L.	Strabolgi, L.
Kinloss, Ly.	Taylor of Mansfield, L.
Kissin, L.	Tordoff, L.
Leatherland, L.	Turner of Camden, B.
Llewelyn-Davies of Hastoe, B.	Underhill, L.
Lloyd of Kilgerran, L.	Wedderburn of Charlton, L.
Longford, E.	Whaddon, L.
Lovell-Davis, L.	White, B.
McCarthy, L.	Williams of Elvel, L.
McIntosh of Haringey, L.	Winchilsea and Nottingham, E.
McNair, L.
Molloy, L.	Winterbottom, L.
Monson, L.

NOT-CONTENTS
Alexander of Tunis, E.	Hailsham of Saint Marylebone, L.
Allerton, L.
Auckland, L.	Harmar-Nicholls, L.
Bauer, L.	Henderson of Brompton, L.
Beaverbrook, L.	Hesketh, L.
Belhaven and Stenton, L.	Hives, L.
Beloff, L.	Home of the Hirsel, L.
Belstead, L.	Hood, V.
Bessborough, E.	Hooper, B.
Blake, L.	Kaberry of Adel, L.
Blakenham, V.	Kimball, L.
Boardman, L.	Kinnaird, L.
Boyd-Carpenter, L.	Knollys, V.
Brabazon of Tara, L.	Lane-Fox, B.
Butterworth, L.	Lauderdale, E.
Caithness, E.	Limerick, E.
Cameron of Lochbroom, L.	Lindsey and Abingdon, E.
Campbell of Alloway, L.	Long, V.
Carnock, L.	Lucas of Chilworth, L.
Clitheroe, L.	Luke, L.
Coleraine, L.	Lyell, L.
Constantine of Stanmore, L.	McAlpine of West Green, L.
Cox, B.	Macleod of Borve, B.
Craigavon, V.	Mancroft, L.
Cullen of Ashbourne, L.	Manton, L.
Davidson, V. [Teller.]	Margadale, L.
Denham, L. [Teller.]	Merrivale, L.
Eden of Winton, L.	Mersey, V.
Elliot of Harwood, B.	Molson, L.
Elton, L.	Murton of Lindisfarne, L.
Faithfull, B.	Nugent of Guildford, L.
Fanshawe of Richmond, L.	Onslow, E.
Forte, L.	Orkney, E.
Fortescue, E.	Pender, L.
Fraser of Kilmorack, L.	Peyton of Yeovil, L.
Gardner of Parkes, B.	Plummer of St Marylebone, L.
Gibson-Watt, L.
Gray of Contin, L.	Porritt, L.
Gridley, L.	Portland, D.

Rankeillour, L.	Tryon, L.
Reay, L.	Vaux of Harrowden, L.
Renton, L.	Vickers, B.
Rodney, L.	Vivian, L.
Sandford, L.	Ward of Witley, V.
Selkirk, E.	Westbury, L.
Sherfield, L.	Whitelaw, V.
Skelmersdale, L.	Wise, L.
Sudeley, L.	Wolfson, L.
Thorneycroft, L.	Wynford, L.
Tranmire, L.	Young, B.
Trumpington, B.	Ypres, E.

Resolved in the negative, and amendment disagreed to accordingly.

5.17 p.m.

Lord Morton of Shuna moved Amendment No. 8: Page 34, line 15, at end insert ("either").

The noble Lord said: My Lords, I am sorry to return to this clause but this amendment is an alternative. The idea behind it is to add to the defence, in other words to subsection (3), the words: or that he reasonably believed that the impression created was neither false nor misleading". I have already spoken at some length on the meaning of subsection (3). I would suggest it creates a defence only if he says that his conduct would not create the impression that was false; whereas if he believed that the impression was not false, it is not giving him any defence at all. Therefore, this amendment giving him alternative defences—and I am speaking really to Amendments Nos. 8 and 9 because No. 9 carries the crucial words—imports the defence of honesty into the defence under subsection (3). I beg to move.

Lord Cameron of Lochbroom

My Lords, I am grateful to the noble Lord for explaining the purpose of these amendments. I would draw his attention to the fact that under the existing defence in subsection (3) it is open to the accused person to show that he reasonably believed that his actual course of conduct would not create an impression that was false or misleading as to the market in or price or value of any investments.

The amendments therefore appear to add nothing to the accused person's existing position under subsection (3). This is because the prosecutor will already have had to prove beyond reasonable doubt that the act or course of conduct created a false or misleading impression as to the marketing, the price or the value of any investments and the accused intended to create that impression.

With respect to the noble Lord, it does not appear to add anything to the defence in subsection (3) to provide for the possibility that the accused can prove he reasonably believed that the impression was neither false nor misleading generally. Of course that would not meet the burden lying upon the prosecution, and of course it is that towards which the defence is directed. Perhaps, with that explanation, the noble Lord might wish to withdraw the amendment.

Lord Morton of Shuna

My Lords, the difficulty here is that we on this side take one interpretation of what is meant by "false impression" and apparently the Government take a different view. The Government appear to take the view that by "false impression" is meant a deliberately false impression. If that is what they mean, that is one thing. But if they do not mean a deliberately false impression, then it is right that the defence of honesty should be left to the person who does not deliberately create a false impression. However, this matter has been considered in effect by the House, and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 9 not moved.]

Clause 48 [Conduct of business rules]:

Lord Lucas of Chilworth moved Amendment No. 10: Page 35, line 39, leave out paragraph (i) and insert—

("(i) as to the circumstances and manner in which and the time when or the period during which action may be taken for the purpose of stabilising the price of investments of any specified description;").

The noble Lord said: My Lords, in moving Amendment No. 10, I would, with the leave of the House—I think it would be for your Lordships' convenience—wish to address myself to Amendments Nos. 11, 18, 26, 65, 69, 70, 71 and 72. These amendments fulfil the undertaking which I gave on Report to introduce provisions to allow the possibility of the market manipulation defence to be extended to cover stabilisation in relation to certain offers of existing investments.

As I indicated at that time, the provision confers an order-making power subject to affirmative resolution procedure, enabling changes to be made to the scope of the market manipulation defence, as established by the amendments we introduced on Report. I believe this will give us the ability to respond, should the need arise, to the new techniques, some of which were put to us by the noble Viscount, Lord Chandos, when he spoke on this matter at Report stage. I think it will be noted that we have taken the opportunity to widen the range of investments which may be stabilised, as well as circumstances in which stabilisation may take place. This is also designed to give flexibility should the emergence of new investment products make that desirable.

Most of the other amendments are consequential upon this new provision; but I should like to draw the attention of your Lordships to the fact that the defence against being found to have contravened Clause 47(2) is available to anyone who acts in conformity with the rules made under Clause 48, governing matters within the scope of exemption in the new Clause 48(7). The defence is not confined to authorised persons who are subject to Clause 48 rules. This would include registered friendly societies. Separate provision in Schedule 11 is therefore unnecessary and the amendments to that schedule reflect this. I beg to move.

Lord Williams of Elvel

My Lords, in the absence of the noble Viscount, Lord Chandos, I suppose it falls to me to thank the noble Lord, Lord Lucas, and the Government for having produced amendments which reflect the assurances given on Report stage. The Opposition have no difficulty with these amendments. Indeed, I think we were arguing in the same direction as the noble Viscount, Lord Chandos.

There is just one point that perhaps I might put to the noble Lord. That concerns the provision in Amendment No. 11, new subsection (6C), that the rules which are made under the stabilisation provisions should be the subject of affirmative, rather than negative, procedure. As the noble Lord well knows, normally the Opposition argues always in favour of affirmative precedures rather than negative procedures. I wonder whether in this case, where new instruments may be devised really quite quickly and where there may be a need quite speedily to amend the rules, the affirmative procedure is sensible. I think that on all sides of your Lordships' House we are agreed on the principle, and I wonder whether we need to go through the necessary delaying business of debating a draft order which is to be made under this clause.

Perhaps the noble Lord could help me with this because, if I may say so, in the past he has been somewhat reluctant to assent to my requests for affirmative procedure as against negative procedure. In this case he is putting that forward as a Government amendment, and I should be very grateful if he could tell us the reason for doing so.

Viscount Chandos

My Lords, perhaps I might add a rather breathless word of thanks to the noble Lord, Lord Lucas, for introducing this amendment. It covers very effectively the objective of the amendment that I moved at the Report stage. With that, I will sit down. I thank the noble Lord.

Lord Lucas of Chilworth

My Lords, I am most grateful to the noble Lord, Lord Williams, for his acceptance of this amendment and I am most glad that the noble Viscount, Lord Chandos, should be in his place to express his pleasure at what we have done.

If the noble Lord, Lord Williams, would like us to revert to the negative procedure, I am almost inclined to invite him to put down a manuscript amendment. But the real truth of the matter is this. The power in Clause 48 is to change the boundaries of a criminal offence. I believe, therefore, that it is preferable to adopt the approach which we have adopted in matters of this kind.

On Question, amendment agreed to.

Lord Lucas of Chilworth moved Amendment No. 11: Page 36, line 25, leave out from ("above") to end of line 27 and insert—

(" (6A) Section 47(2) above shall not be regarded as contravened by anything done for the purpose of stabilising the price of investments if it is done in conformity with rules made under this section and—

1. (a) in respect of investments which fall within any of paragraphs 1 to 5 of Schedule 1 to this Act and are specified by the rules; and
2. (b) during such period before or after the issue of those investments as is specified by the rules.

(6B) The Secretary of State may by order amend subsection (6A) above—

1. (a) by restricting or extending the kinds of investment to which it applies;
2. (b) by restricting it so as to apply only in relation to the issue of investments in specified circumstances or by extending it, 542 in respect of investments of any kind specified in the order, so as to apply to things done during a specified period before or after events other than the issue of those investments.

(6C) No order shall be made under subsection (6B) above unless a draft of it has been laid before and approved by a resolution of each House of Parliament.").

The noble Lord said: My Lords, I have already spoken to this amendment. I beg to move.

On Question, amendment agreed to.

Clause 53 [Indemnity rules]:

Lord Lucas of Chilworth moved Amendment No. 12. Page 40, line 1, leave out subsection (5).

The noble Lord said: My Lords I beg to move Amendment No. 12. During our discussions on Report on 20th October (at col. 12 of the Official Report) I mentioned that this amendment had unfortunately failed to be tabled with other amendments associated with the new compensation clause, what is now Clause 54. The background is that we have reappraised the way in which rules made under the powers in Chapter V are applied to persons who are authorised by virtue of Clause 31.

When the Bill was drafted we were concerned that applying rules such as those involving indemnity and compensation arrangements might be inconsistent with our Community obligations. Clause 53(5) attempted to define an area of application which would be consistent with those obligations. On further consideration we believe this to be too inflexible. We therefore propose to rely on good sense and ultimately on the powers in Clause 192 to ensure that rules are not applied in a way which conflicts with our Community obligations. This is already the approach on which, for instance, Clauses 49 and 54 are based. Clause 53(5) has therefore become redundant. I beg to move.

On Question, amendment agreed to.

5.30 p.m.

Clause 54 [Compensation Fund]:

[Amendment No. 13 not moved.]

Clause 74 [Administration orders]:

Lord Cameron of Lochbroom moved Amendment No. 14: Page 58, line 34, leave out ("(including a person whose authorisation has been suspended)") and insert (", a person whose authorisation is suspended under section 28 above or who is the subject of a direction under section 33(1)(b) above").

The noble and learned Lord said: My Lords, this is a technical amendment which brings the wording of Clause 74 in line with the wording of other similar provisions in the Bill. I beg to move.

On Question, amendment agreed to.

Clause 90 [Facilities and information in the United Kingdom]:

[Amendment No. 15 not moved.]

Clause 114 [Potter to transfer functions to designated agency]:

Lord Williams of Elvel moved Amendment No. 16: Page 95, line 9, leave out ("may") and insert ("shall").

The noble Lord said: My Lords, I beg to move Amendment No. 16 standing in my name and that of my noble friend Lord Morton of Shuna. It may be for the convenience of the House if I speak to Amendments Nos. 66 and 67. The purpose of these amendments which refer to the delegation of powers to the designated agency is well known to your Lordships. It is our belief that the body which regulates the future activities of the financial service industry should be a properly constituted statutory commission.

As we have made clear both in your Lordships' House and in another place on a number of occasions, we hold this view firmly and consistently. We did not move these amendments on Report because we were anxious at that stage to make sure that the proceedings did not last too long and that your Lordships were not kept up too late on that evening. However, we feel it appropriate to bring these amendments back on the Third Reading so that your Lordships can have what may well be a last chance, at least under this Bill, to discuss this issue.

I have before me a result of a study which was conducted by a firm called Dewe Rogerson for the Observer newspaper in July and August. The headline is: 'SEC must come' say the institutions". The study showed that there was "strong backing", to use its words, for a state-controlled regulatory body. That emerged from the survey of major institutions conducted ahead of the deregulation procedure that is now know as the Big Bang. Indeed there are many institutions, according to the study, which believe that a securities and exchange commission is inevitable.

I quote again from the Observer article: The poll, conducted by … Dewe Rogerson … reveals that there is little institutional confidence in 'Chinese walls', the proposed barriers against conflicts of interest between brokers, market-makers and fund managers under the same roof. Some 56 per cent. of the respondents claimed that Chinese walls 'will not work' against a meagre 21 per cent. who believe they 'will work' ". The negative effects were seen as financial collapse for some, conflicts of interest for others, short-term trauma for others and poorer broker research. The 81 institutions that were polled included 63 per cent. which formed the view that the formation of a British SEC was inevitable. The Opposition's view is therefore not without some support in the City of London.

We believe that what we have here—and I refer to what the noble and learned Lord the Lord Advocate said at Second Reading—is, as I believe he said, an "odd arrangement". Perhaps he used the words "an unusual arrangement". We have a private company, limited by guarantee, to which the Secretary of State may delegate certain powers. These powers are of course the same sort of powers as the Securities and Exchange Commission has in the United States. I think many of us would argue that the sort of powers which the designated agency will receive are very similar to those of the SEC in the United States. Indeed, when we tabled this amendment at Report stage, I had telephone calls from various people saying, "Why do you want to make it a statutory commission? After all, the delegated powers of the designated agency do exactly the same thing. We cannot see any advantage in making it statutory".

For us there are two advantages. The first is that this would be a permanent commission. There would, in our view, be no question of another designated agency coming along and competing with the first designated agency in order to obtain the business of running the financial services industry. The Securities and Investments Board would be firmly established for ever as a statutory body. Secondly—and I referred to this in my speech on the Second Reading of this Bill—by making the members of this body Crown agents and Crown servants we should be giving them the type of immunity, particularly in foreign jurisdictions, that I believe servants of the SIB should properly have.

I am not going over all the arguments which I put on Second Reading on the question of SIB immunities in foreign jurisdictions. It is a technical point on which I and my noble friend Lord Morton of Shuna have consulted a number of your Lordships with greater legal experience than myself. However, we are convinced that unless such a body is established as a Crown agent or Crown servant, the immunity provisions at present in the Bill are not entirely satisfactory.

Lastly, we believe that there must be a permanent, properly constituted statutory body responsible to the Secretary of State and accountable to Parliament that performs all the functions that are given to the designated agency under the Bill as it is presently drafted. That is why—if I may turn for a moment to Amendments Nos. 66 and 67—we say that from the date of the delegation order we would like this body to be considered as agents of the Crown and have properly constituted authority under the Crown.

To recall the history of the designated agency in the Bill is to recall a rather curious history. It started off as a self-regulating body. The Bill as it originally appeared in another place specified a designated agency that could change, the name of which was unspecified and which apparently held its powers under sufferance. In another place the argument went against the Government and the Securities and Investments Board was named in the Bill. When the Bill came to your Lordships' House it had the name of that organisation in the Bill and it is still there. However, it is only there as the first receiver of the delegation order. There is still the possibility that for one reason or another the Government might change their mind and decide to appoint somebody else.

We do not believe that this is a proper way to ensure the continuing supervision of the financial services industry in this country. We should far prefer to have a securities and investments board—call it what you may—which is a properly constituted Crown commission, firmly implanted in the statute and with agents whose servants are Crown servants.

I realise that what we are moving by way of amendments is, in a sense, a halfway house between what we originally demanded and what the Government have put in the Bill. But I think that that halfway house takes us halfway along the road where we should like to be, and perhaps on a future occasion with another government in power we may be able to move down the other half of the road to a fully statutory agency. In the meantime, having been defeated in your Lordships' House on the major issue of whether or not this should be a statutory commission, we are moving to what I call a minimalist position to make sure that what we have in mind—and what indeed the majority of institutions in the City have in mind—is at least in place without disturbing the structure of the Bill. I beg to move.

Viscount Chandos

My Lords, at earlier stages of this Bill I have suggested that we would, if starting with a clean sheet of paper, have preferred to see a system that was just a few degrees more based on statutory regulation than on self-regulation. That said, we stated at those stages that we would support the Bill and the system of regulation that was being proposed within it. On that basis, despite the reasons that the noble Lord, Lord Williams of Elvel, has advanced, it seems to me that to make this small change in the wording of this clause strikes at the heart of the balance that the Government are trying to achieve in the Bill, and on that basis I suggest that your Lordships should not support this amendment.

Lord Tryon

My Lords, what I have to say may go slightly wide of this amendment, but it is highly germane to this clause and to the future. Also I reassure your Lordships that this is probably my last planned intervention on this Bill, though it is not a Trappist vow—if somebody causes me to rise to my feet later.

As a result of what was said at the Report stage, it has become clear that to a marked extent the impact of the brave new world on the financial services industry, and indeed of this Bill on it, will depend not so much on what your Lordships have been able to consider so far in this House but rather on the form of rules that will eventually be submitted by the SIB to the Secretary of State for his approval. I mentioned this briefly at Report stage, but I must come hack to it now.

The Secretary of State will only be able to delegate any of his powers to the SIB if he is satisfied with those rules and he will only be able to make a delegation order if a draft of it, has been laid before and approved by a resolution of each House of Parliament". On the face of it, there is no apparent necessity under this clause for the rules themselves to be considered by Parliament. But it has, I think, been recognised by the Government that we should be given an opportunity for such a discussion when the delegation order comes before us.

At col. 718 of Hansard of 14th October, the noble Lord, Lord Lucas, said: I start from the position that we should not seek to regulate any activities unless there is a very good reason for so doing.". Indeed, the White Paper back in January proposed a regulatory framework which did not mean excessive regulation. I am afraid that the way things are moving we seem to he getting from the SIB something that approaches excessive legislation and unnecessary monitoring and enforcement costs.

The SIB has already proposed a vast number of regulations which, in my view, go beyond the minimum necessary to protect the investor. Also, up until now we have not seen enough of these rules to have any sensible debate about them or even, really, to get the feel of them. We have just discussed the report on the compensation fund, polarisation and conglomerates, and the noble Lord, Lord Lucas, particularly in relation to the compensation fund, said: Frankly, I do not see how we can take a view on a matter like this at the tail end of a Bill's progress through Parliament, without even having the benefit of the SIB's views on what is realistically achievable". The noble Lord, Lord Lucas, is absolutely right; and that is the whole burden of my argument.

It is surely right that we should have a proper opportunity to consider the rules when they have finally been perfected, which they must be before being presented to the Secretary of State. We will then know exactly what the delegation order will be—to start with, at any rate. So may I ask the noble Lord the Minister please to give us an undertaking on this point that we will have a chance properly to debate the rule book alongside the delegation order when the time comes?

As to this amendment, I am afraid that I have to say what I have said several times to the noble Lord, Lord Williams—that this may well come about in due course. But, in my view, we should take this a step at a time, and what we are doing at the moment is a good first step. But I would not go as far as he is proposing now.

5.45 p.m.

The Earl of Limerick

My Lords, I thought for a moment that we were back on Second Reading when, as I recall, in the course of a general welcome to this Bill from all parts of the House points such as that raised in this amendment were covered. Having a little experience of the way in which questions of the nature put out in the new Dewe Rogerson survey are posed in the way in which they are answered, I would take leave to doubt whether all of the respondents were fully au fait with all the detail in the Financial Services Bill. I believe that having set our course in this direction, it would be right to proceed with a full-hearted attempt to secure a workable regime of what I still believe should be called not self-regulation but practitioner-regulation and to allow it to take its course. If it is discovered to be deficient, no doubt it is a matter which will come again before this House. Meanwhile, I believe that this is no time for halfway stages.

Lord Lucas of Chilworth

My Lords, I wonder whether your Lordships, with your customary generosity, will allow me, in replying to Amendment No. 16, which the noble Lord, Lord Williams of Elvel, has moved and spoken to with Amendments Nos. 66 and 67, to invite you to consider also Amendment No. 15, which I greatly regret neither noble Lords opposite nor noble Lords on this side of the House got hold of at the right moment in time. I can save your Lordships' time. It is an amendment which was discussed before at Report stage—

The Deputy Speaker (Lord Nugent of Guildford)

My Lords, may I help the noble Lord? I have been informed that a small error has been made and, with the leave of the House, I propose to take Amendment No. 15 after Amendment No. 16. Then the House will have a chance to approve it.

Lord Lucas of Chilworth

My Lords, I am sure all noble Lords will be grateful to the noble Lord on the Woolsack. Then may I turn straight away to Amendment No. 16, which is before us? I have to say that I am totally opposed to moving a minimal position towards an ultimate end, which is what the noble Lord, Lord Williams, suggested he was trying to do. He suggested that his amendment was a halfway house. I am suggesting that it is halfway too far because, as he has already said, he would want to go the other way if he gets the opportunity. The reason is simply this. The amendment to Clause 114 would remove the residual element of discretion which the Secretary of State would have to refuse to transfer a particular transferable function despite all the criteria for delegation in the Bill being met. My expectation is that almost all the functions which the designated agency is able to exercise would be transferred. There may be a few, however, that it would he preferable for the Secretary of State to retain.

Perhaps by way of illustration I may suggest this. The Secretary of State has non-transferable functions under this Bill and functions under other legislation. It may be better for the overall operation of the regulatory system for a particular transferable function to be retained. It is difficult to be sure how the functions can best be split up given that we have yet to see the proposals of the body hoping to become the designated agency. This is why some element of discretion is desirable. That discretion will have to be exercised reasonably, and the Government can be called upon by your Lordships' House to explain the exercise of that discretion when, for example, the delegation order is debated.

Perhaps I may turn to the Schedule 9 amendments. We debated two very similar amendments during the Committee stage of the Bill, since when the arguments have not really changed. These amendments seek to reverse a central feature of the Government's policy. I think the noble Lord, Lord Williams, will accept that point. The central feature is that the body at the heart of the regulatory regime should be a private sector body. The effect of the amendments, as the noble Lord suggests, would be to turn the designated agency into a Crown body very similar to a government department—a quango very much like the Manpower Services Commission, the Health and Safety Executive and the Advisory, Conciliation and Arbitration Service. But we do not believe that these are appropriate models for the body which is to regulate the City. What is needed is a body which can operate flexibly, rapidly, effectively and free of bureaucratic controls. These amendments could make the expenditure of the agency public expenditure, subject to all the normal controls which that involves. Expenditure, borrowing and fees would all be determined by the Government rather than by the agency itself.

One could agree that creating a statutory commission would make it a permanent body. This would remove the safeguard in the Bill which gives the Secretary of State the ability to take action by removing powers from the agency if that agency is no longer to meet the required standard. This power provides essential accountability to the Secretary of State and to Parliament and it ensures the maintenance of high standards. This is also the reason why powers can, if necessary, be delegated to a body other than the SIB if the SIB does not live up to the required standards. The noble Lord, Lord Williams, said that there might be a possibility of a second contender; and when I talk about the SIB I recognise that point. Perhaps one should have been saying "the designated agency" but I think that that is a matter of words only.

I note that the noble Viscount, Lord Chandos, is against the amendment, and I note that the noble Lord, Lord Tryon, is opposed to the amendment although he asked me quite specifically whether there would be an opportunity to debate the draft rules. When the delegation order is put before Parliament, and in particular before your Lordships' House, the draft rules will be available and can then be discussed. It will be essential for the approval of the House to be gained before delegation is possible.

Perhaps I may briefly turn to the Schedule 9 amendments. We debated similar amendments in Committee, and my noble friend Lord Limerick referred to this. The amendments have not changed. These amendments would also mean that the chairman and members of the agency's governing body would become Crown servants, as would the agency staff. Pay, pensions and other conditions would as a matter of policy be set by the Treasury. There is furthermore a strong presumption that they would not merely be Crown servants but civil servants, and treated accordingly. We do not believe that this is the way to secure the much needed participation of expert practitioners from the City. That is not to say that the Civil Service itself is not without its expertise in these areas. Let no noble Lord think that. We propose that the agency should be a body created by the City, a private sector company, and we believe that as a result of this it would enjoy greater support in the City and would be more effective. I hope that the noble Lord, Lord Williams, will not press his amendment.

Lord Williams of Elvel

My Lords, I am most grateful to the noble Lord, Lord Lucas of Chilworth, and indeed to those noble Lords who have taken part in the debate. I am also grateful to the noble Lord, Lord Lucas, for his views that civil servants are worthy and possible worthy members of such a body and should not be excluded. Indeed during the course of the Bill we gained a considerable knowledge of the City of London and the financial services industry.

I shall not press this amendment. The noble Lord requested me not to and I shall not press it. I wish simply to put down a marker. I have to tell the noble Lord that should there be a change of government, and should our party come into government, we shall review very seriously this question which, as he will realise, has been at the heart of our objection to the Bill since it started in another place. As this is my last opportunity to do so I wish to assure the noble Lord that our views have not changed and our intentions have not changed. In the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Speaker

My Lords, with the leave of the House I propose to call Amendment No. 15.

Clause 90 [Facilities and information in the United Kingdom]:

Lord Williams of Elvel moved Amendment No. 15: Page 74, line 22, leave out from ("facilities") to end of line 23 and insert ("as he thinks desirable in the interest of participants and as are specified in the regulations.").

The noble Lord said: My Lords, I must apologise to the House and indeed to the Deputy Speaker for not moving this amendment, which I should have moved. I believe that this point was discussed at an earlier stage in the Bill and I understand that the Government had some sympathy with the thrust of the amendment. I do not propose to say more than that but I hope very much that the Government will accept it.

On Question, amendment agreed to.

Clause 114 [Power to transfer functions to designated agency]:

Lord Lucas of Chilworth moved Amendment No. 17: Page 95, line 27, leave out ("and 5") and insert (", 5 and 15").

The noble Lord said: My Lords, I have to apologise to the House. This was one of the amendments moved by the noble Lord, Lord Ezra, on Report, but it was accidentally negatived. I had previously indicated to the noble Lord our readiness to accept it. I am pleased to have this opportunity of putting matters right if your Lordships so permit. I beg to move.

On Question, amendment agreed to.

Lord Lucas of Chilworth moved Amendment No. 18: Page 95, line 31, at end insert— ("(bb) section 48(6B);").

The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 10. I beg to move.

On Question, amendment agreed to.

Clause 133 [Misleading statements as to insurance contracts]:

Lord Cameron of Lochbroom moved Amendments Nos. 19 and 20: Page 114, line 16, after ("statement") insert (", promise or forecast").

Page 114, line 19, after ("statement") insert (", promise or forecast").

The noble and learned Lord said: My Lords, I spoke to this amendment with Amendment No. 5, as indeed I also spoke to Amendment No. 20. Perhaps it may be for the convenience of the House if I move Amendments Nos. 19 and 20 together:

On Question, amendments agreed to.

Clause 135 [Communication by auditor with Secretary of State]:

6 p.m.

Lord Cameron of Lochbroom moved Amendment No. 21: Page 115, line 29, at end insert—

("(3A) No regulations shall be made under subsection (2) above unless a draft of them has been laid before and approved by a resolution of each House of Parliament.").

The noble and learned Lord said: My Lords, in speaking to this amendment, I speak also to Amendments Nos. 22 and 49. The first of these amendments requires regulations on the auditors of insurance companies to be subject to an affirmative resolution by each House of Parliament. The Government promised on Report to bring forward such an amendment. The remaining amendments are consequential.

On Question, amendment agreed to.

Lord Cameron of Lochbroom moved Amendment No. 22: Page 115, line 45, at end insert ("and in section 97(4) of that Act (which provides that regulations under that Act are to be subject to annulment) after the word "Act" there shall be inserted the words", except regulations under section 21 A(3A)," ").

On Question, amendment agreed to.

Lord Morton of Shuna moved Amendment No. 23: After Clause 151 insert the following new clause: ("Untrue statements in particulars.

—(1) If listing particulars are issued with an untrue statement included in them, any person responsible for the particulars shall be guilty of an offence and liable to imprisonment or a fine or both unless he proves either—

1. (a) that the statement was immaterial, or
2. (b) that he had reasonable grounds to believe and did, up to the time of the issue of the particulars, believe that the statement was true.

(2) For the purposes of this section—

1. (a) A statement included in any listing particulars is deemed to be untrue if it is misleading in the form and context in which it is included and,
2. (b) A statement is deemed to be included in the listing particulars if it is contained in them or in any report or memorandum annexed to them or by reference incorporated in or issued with them.").

The noble Lord said: My Lords, to this amendment the noble and learned Lord the Lord Advocate has forced me to refer already. In speaking to this amendment, I wish to speak to Amendments Nos. 24 and 44. All three amendments relate to offences under the provisions relating to listing particulars and the issuing of prospectuses.

As your Lordships will appreciate, there is a vast concatenation of various provisions in the Bill saying that people are liable in damages in certain circumstances and are responsible in certain circumstances and not responsible in others. Amendments Nos. 23 and 24 are in effect repeats of Sections 70 and 71 of the Companies Act 1985, which was a consolidation Act, and these provisions go back at least to the Companies Act 1948.

The provisions have been clearly understood in the Companies Act over the last 40 years. They are quite specific. They impose specific penalties on persons who are responsible for particulars or prospectuses and provide that if there is an untrue statement the person is guilty of an offence unless he proves (a) that the statement was immaterial, or (b) that he had reasonable grounds and did believe that the statement was true". It continues to define, in the words that have had 40 years of interpretation and acceptance, (a) A statement included in any listing particulars is deemed to be untrue if it is misleading in the form and context in which it is included and, (b) A statement is deemed to be included in the listing particulars if it is contained in them or in any report or memorandum annexed to them".

In Amendment No. 24 one has precisely the same provisions in relation to prospectuses because Part IV and Part V of the Bill respectively deal with listing particulars and prospectuses. The provisions for untrue statements in listing particulars and prospectuses are not as clear and as specific as they were in the Companies Act, and the attempt is specifically to go back to Sections 70 and 71 of the Companies Act.

Amendment No. 44 is a proposed amendment to Clause 200 as it now is. It is an attempt to meet a situation because I foresee that it may be argued by the Government that Clause 200 meets this difficulty. It says: A person commits an offence if—(a) for the purposes of or in connection with any application under this Act; or (b) in purported compliance with any requirement … he furnishes information which he knows to he false or misleading in a material particular or recklessly furnishes information which is false … in a material particular".

The trouble with that provision, and why I have tabled this amendment to the clause, is that it does not deal with the situation where the person accused of an offence under this clause says, "I was not required to put this information—it is gratuitous and unnecessary. Yes, it is false, it is misleading, but it is not in the requirements and, therefore, it does not matter". That sort of information, if I understand the situation correctly, could apply to statements that go into prospectuses or listing particulars as to who would be on the board of directors and where the centre of operations of a company were to be.

I speak, of course, about the position of the Guinness offer and the takeover. It could well be argued that those were not material. This is to meet that type of point because it is clear that those two items of information affected people as to whether they took the Guinness offer. It is at meeting that type of position that Amendment No. 44 aims.

Lord Cameron of Lochbroom

My Lords, I certainly share the concern of the noble Lord that listing particulars and prospectuses should be truthful and not misleading, but from that point I am afraid that I cannot agree with him that the particular criminal sanctions he proposes are necessary or desirable. I see no reason to attach the sanction to registration of the listing particulars rather than to inducing investors to acquire the securities.

As noble Lords have heard today, it is already provided under Clause 47 of the Bill that it is a criminal offence knowingly to make any misleading, false or deceptive statement or dishonestly to conceal any material facts, ro recklessly to make any misleading, false or deceptive statement for the purpose of inducing any person to enter into an investment agreement. This applies both to listing particulars and to prospectuses.

The effect of these new clauses is to introduce a further offence of making an untrue statement without reasonable belief. This would reproduce the present unsatisfactory position in which there is one offence under the Prevention of Fraud (Investments) Act 1958, which, as I said earlier, corresponds to Clause 47(1), and a separate offence under Sections 70 and 71 of the Companies Act 1985 corresponding to the new clauses proposed by the amendments.

There has already been confusion about how these offences interact as well as doubts about whether criminal sanctions are appropriate for the lesser offence. I should say for completeness that only Section 13—that is, the current equivalent of Clause 47(1)—of the Prevention of Fraud (Investments) Act applies to false or misleading statements in listing particulars because Section 70 of the Companies Act 1985 has been disapplied by the Stock Exchange Listing Regulations of 1984.

Apart from preferring not to preserve the untidiness and the element of duplication in the present law, I am not persuaded that the lesser offence of negligently making a statement in a prospectus warrants criminal sanctions. Investors will have a right to compensation and that should be enough. We are not required by the listing directives to impose criminal sanctions, and, as I have just said, Sections 70 and 71 of the Companies Act have not applied to listing particulars since 1984. I am aware of no evidence that investors have suffered as a result.

There are two further reasons which I also put forward for not accepting these equivalents to Sections 70 and 71 of the Companies Act. In the first place, the period is different. Under company law the relevant point is the date of issue; and listing particulars, of course, have to be kept up to date until dealings begin.

The second point is that the general duty in Clause 146 is in effect a duty to state all material facts. The Companies Act provisions apply in the context of a requirement to state certain specific facts. It is for those reasons that the offences were disapplied when we made the listing regulations in 1984—that is, in short, they do not work.

We have sought in the Bill to strike the right balance between criminal and civil sanctions in this respect. Careful consideration was given to the question of sanctions. I share the noble Lord's clear concern that the punishment should fit the crime, but I do not think that greater reliance on the criminal law would be appropriate or, indeed, more effective. For those reasons, and with the explanation I have given as to the Government's intent in setting out these criminal sanctions and excluding negligent statements from the scope of the criminal law, I suggest to the noble Lord that he might feel able to withdraw the amendment.

Lord Morton of Shuna

My Lords, I think I understand what the Government are saying but I do not know that I agree with it. However, I have no wish to divide the House on the matter and therefore I ask leave to withdraw the amendment.

Amendment, by leave, withdrawn

Clause 152 [Persons responsible for particulars]:

6.15 p.m.

Lord Hacking moved Amendment No. 23A; Page 128, line 17, leave out from ("person") to end of line 19 and insert ("who has authorised the contents of, or any part of, the particulars (not being a person falling within any of the foregoing paragraphs or a person to whom authority in that behalf has been delegated by any person falling within any paragraph of this subsection).").

The noble Lord said: My Lords, with the leave of the House I speak also to my Amendment No. 24A. As your Lordships may remember from the Committee and Report stages, Parts IV and V deal, in the first place, with listed securities and, in the second place, with unlisted securities. Therefore, my Amendment No. 24A deals with the same problem as it relates to unlisted securities.

We debated this matter on Report under my Amendments Nos. 359A and 420A. It was rather late at night and the record in Hansard, therefore, shows that I spent one half of my speech arguing the case for my amendments and the other half arguing the case against my amendments. While at the late hour that event possibly could have taken place, the Editor of Hansard has kindly acknowledged that there was an error in Hansard and that the last two paragraphs of the speech recorded in my name, in col. 122, belong to the speech of the noble and learned Lord the Lord Advocate.

The reason why I again refer this matter to your Lordships' attention is because it is an issue that causes considerable concern to those members of the Law Society's Standing Committee on Company Law who have given such careful scrutiny—and such helpful scrutiny, if I may say so—to this Bill. There is a second reason why I bring it back at this stage. I think I am right in recording that Clause 152, as it now is in the Bill, came into the Bill as Government Amendment No. 335 at the Committee stage. Thus, Clause 152 will be one of the many clauses that the other place will shortly be considering. Therefore, if my argument at this late stage is thought by the noble and learned Lord the Lord Advocate to have some force, then there is a little time for the Government to give this matter further consideration before the Bill is enshrined in the statute book.

Clause 152 deals with the persons who are held to be responsible for listing particulars. Those persons are identified as the issuer, each director of the issuer, each person named as having agreed to become a director of the issuer, and other persons whom, as your Lordships might think, should have prime responsibility for the listing particulars. However, in subsection (1)(e) there is a "mop-up" or "sweep-up" clause seeking to bring in other persons who should be held responsible for the listing particulars. This latter category of persons set out in subsection (1)(e) will include experts such as petroleum consultants, valuers and accountants whose reports are included in the particulars, and the issuing house under whose name the particulars are issued.

However, as drafted the sweep-up category will also include individuals to whom the task of preparing the listed particulars was delegated by one of the persons responsible: thus, it could include an executive of the issuer who is not a director of the issuer but who is, say, a member of the executive committee dealing with the listing particulars. During the debate on Report—and this is recorded in Hansard under my name and not that of the noble and learned Lord—at about 11 o'clock on 20th October the noble and learned Lord indicated that executives below board level who had been delegated to authorise the contents of listing particulars should be treated in the category of "persons responsible". If that is so it creates a number of significant anomalies.

The Bill contains provisions permitting directors to be excluded from the list of "persons responsible" in certain circumstances. For example, directors may be excluded in the case of issues of "international securities" specified in the listing rules. Thus, under the Bill directors may, as is the current practice, be excluded from being persons responsible in eurobond issues. Therefore, without this amendment the result would be that executives of issuers of eurobonds would be "persons responsible" while their superiors on the hoard would not. That cannot be right. For that reason, I urge the noble and learned Lord to give the matter further consideration. I beg to move.

Lord Cameron of Lochbroom

My Lords, I was about to say that I have been persuaded entirely by what the noble Lord said in the latter part of his speech on Report rather than by the first part; but I think he and I are agreed that the record is not accurate.

I have obviously listened with care to what the noble Lord said and I think he is aware that over the weekend there were discussions on this point between officials of my noble friend's department and a representative of the Law Society. From these discussions it emerged that there is little or nothing between us in policy terms. I said on Report—as the noble Lord said, the remarks were attributed to him—that if the responsibility for authorising the contents of listing particulars have been delegated to particular executives within, for example, an issuing house—by which I meant formally transferred—so that the authority they are exercising is their own and not that of the house, it is right and proper that they should be liable. I did not intend that my remarks should be taken as meaning, as apparently they have been, that executives who merely act in their executive capacity should be covered. Nor do I believe that that is the effect of the Bill. The word used in paragraph (1)(e) is "authorised". This word was chosen with considerable care, and indeed following consultations with the Law Society. What it connotes is not the fact of doing something, but the exercise of authority. In the last example given the authority exercised is clearly that of the issuing house, not the executives. Thus the issuing house and not the executives would be liable.

It might be asked: if that be so, why do we not accept the amendment? Again, I have considered this matter very carefully, but I am satisfied that it would be wrong to do so.

In the first place, if there is a problem, it is not a new one. I am advised that exactly the same problem arises under the Companies Acts. I suggest that we must be very wary at this stage in a Bill of introducing glosses on concepts that have worked well for many years.

Secondly, I am concerned that the effect of the noble Lord's amendment may not be that which he intends, and which we would endorse in principle; namely, to ensure that the executives are not liable where the issuing house is. The amendment would leave out of paragraph (e) a person who had authorised the contents of the listing particulars if he did so by virtue of authority delegated to him by a person falling within any paragraph of the subsection. That formulation begs the question as to whether a person who does not himself grant authority but who formally delegates the function to another could be said to have authorised the contents of the document. The natural construction would be that he could not and since, in the example given, the executives would ultimately have received their authority from the issuer, who is covered by paragraph (a), the effect might be to exclude both the executives and the issuing house. I do not think that would be right and I am sure that the noble Lord will agree with me.

Even if the courts would not construe the provision in that way, as I hope would be the case, there is a third difficulty. The obligation to disclose is not absolute. Under Clause 146(2) it is an obligation to disclose information: within the knowledge of [the] person responsible … or which it would be reasonable for him to obtain by making enquiries". This concept, which is derived from the directive, makes sense if it is applied to a person who himself grants authority. It does not make sense if it has to be applied to a person who has delegated the right to grant authority. In that case, whose knowledge is relevant? Who has to make the inquiries? I am not seeking to make a debating point. The case I am putting forward is that the Bill is consistent with my view that the word "authorises" relates to the actual exercise of formal authority. It is not consistent with the interpretation which underlies the noble Lord's amendment that a person can be responsible but not himself authorise. If the noble Lord's amendment were accepted, then, faced with these inconsistent concepts, the court would be in a dilemma and so would have no guidance as to how to apply the duty of disclosure.

The noble Lord also made reference to an argument which was based upon the first half of subsection (5) of Clause 152. As I understood it, the argument was that the effect would be that where the executives were executives of an issuer of international securities, they would be liable while the directors would not. Again, I fear that there is a difference of interpretation between us. Subsection (5) disapplies paragraph (b), which refers to directors, and paragraph (c), which refers to prospective directors in the case of an issuer of international securities. The directors and prospective directors are therefore not liable as such. But because the paragraphs are disapplied, the reference in paragraph (e) to a person, not falling within any of the foregoing paragraphs", does not exclude the directors or prospective directors if they have in fact given the requisite authority. So far as they are concerned, the position will be exactly the same as for any other issuer.

If I may sum up—and I apologise for having taken a little time, but I recognise that this is an important point—in drawing up legislation there is always a temptation to deal expressly with points raised so as to put the interpretation beyond doubt. I suggest that it is a temptation that should be resisted here because, as I pointed out, making one point clear may make other points unclear. We are satisfied that we have expressed the concepts that we wish to see in the Bill as well as can be done. Our analysis of the effects of the proposed amendment is that while it may assist on the particular issue, it casts doubt on other and equally important areas. Part of the problem is that we cannot foresee all the possible doubts that may arise. In view of this I cannot advise the House to accept this amendment, and I hope that in the light of what I have said the noble Lord will feel able to withdraw it.

Lord Hacking

My Lords, unless any noble Lord wishes to speak I shall withdraw this amendment. This is a difficult matter and I believe that it requires further attention; but the noble and learned Lord has spoken, and I am content at this stage to leave it here. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 24 and 24A not moved.]

Clause 171 [Contraventions]:

Lord Cameron of Lochbroom moved Amendment No. 25: Page 145, line 23, leave out from ("actionable") to end of line 24 and insert ("at the suit of a person who suffers loss as as result of the contravention subject to the defences and other incidents applying to actions for breach of statutory duty.").

The noble and learned Lord said: My Lords, in moving this amendment I should like also to speak to Amendment No. 34 and to Amendment No. 73. These amendments bring the provisions of the Bill to which they refer into line with the other provisions which have already been agreed on Report, conferring a civil right of action arising out of contraventions of certain provisions of the Bill. In these circumstances, I beg to move.

On Question, amendment agreed to.

Clause 175 [International bonds]:

Lord Cameron of Lochbroom moved Amendment No. 26: Page 147, line 25, leave out from ("securities") to end of line 28 and insert ("if it is done in conformity with rules made under section 48 of the Financial Services Act 1986 and—

1. (a) in respect of securities which fall within any of paragraphs 1 to 5 of Schedule 1 to that Act and are specified by the rules; and
2. (b) during such period before or after the issue of those securities as is specified by the rules.

(2) Any order under subsection (6B) of section 48 of that Act shall apply also in relation to subsection (1) of this section."").

The noble and learned Lord said: My Lords, in moving this amendment I shall also speak to Amendments Nos. 27 to 33 and Amendment No. 77. I have already spoken to Amendment No. 26 with Amendment No. 10. I beg to move.

On Question, amendment agreed to.

Clause 178 [Penalties for failure to co-operate with s. 177 investigations]:

Lord Beaverbrook moved Amendments Nos. 27 to 33: Page 148, line 20, after ("request") insert ("or answer any such question"). Page 150, line 28, after ("request") insert ("or answer a question"). Page 150, line 43, leave out ("request in question") and insert ("relevant request or answer the relevant question").

Clause 179 [Restrictions on disclosure of information]: Page 151, line 34, leave out ("the primary recipient") and insert ("a person mentioned in subsection (3) below ("the primary recipient")"). Page 151, line 40, leave out ("a person mentioned in subsection (3) below. Page 152, line 4, leave out ("(2)") and insert ("(1)").

Clause 181 [Directions restricting disclosure of information overseas]: Page 157, line 10, at end insert ("or of such arrangements as are mentioned in section 39(4)(b) above").

The noble Lord said: My Lords, for the convenience of the House I shall move Amendments Nos. 27 to 33 inclusive and speak to the subsequent Amendment No. 77. Amendments Nos. 27 to 29 are technical amendments to clarify the meaning of Clause 178 which provides for sanctions against refusal to co-operate with inspectors investigating insider dealing. Amendments Nos. 30 to 33 and Amendment No. 77 are also technical amendments, but to the clauses covering the provisions on disclosure of information. I beg to move.

On Question, Amendments Nos. 27 to 33 agreed to.

Clause 185 [Banking business]:

Lord Cameron of Lochbroom moved Amendment No. 34: Page 161, line 18, leave out from ("actionable") to ("but") in line 20 and insert ("at the suit of a person who suffers loss as a result of the contravention subject to the defences and other incidents applying to actions for breach of statutory duty,").

The noble and learned Lord said: My Lords, I spoke to this amendment with Amendment No. 25. I beg to move.

On Question, amendment agreed to.

[Amendment No. 35 had been withdrawn from the Marshalled List.]

Clause 187 [Exemption from liability for damages]:

Lord Hacking moved Amendment No. 36: Page 163, line 4, at end insert— (" (2A) Neither a recognised professional body nor any of its officers or servants or members of its governing body or its committees shall be liable in damages at the suit of any member of that professional body or of any person, whether certified or not, over whom that professional body has authority for the purposes of Part I of this Act 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—

1. (a) the rules, practices, powers and arrangements of the body to which the requirements in section 18(3) and paragraphs 1 to 5 of Schedule 3 apply;
2. (b) the obligations with which paragraph 6 of that Schedule requires the body to comply;
3. (c) any guidance issued by the body;
4. (d) the powers of the body under section 53(2), 64(4) or 105(2)(a) above; or
5. (e) the obligations to which the body is subject by virtue of this Act")

The noble Lord said: My Lords, in the absence of the noble Lord, Lord Benson, who regrettably is unable to be with your Lordships tonight because he is still detained upon another matter in Hong Kong, I beg to move this amendment which stands in his name and mine and in the names of the noble Lords, Lord Morton of Shuna and Lord Ezra. Your Lordships have already debated a similar amendment to this amendment at Committee stage, when the House divided. It may be helpful, therefore, if I summarise the present position with regard to this amendment. Under the Bill it is proposed that there will be three main regulatory bodies. There will be the SIB, SROs and RPBs.

As proposed the SIB is to be immune from suit. All SROs are now also to be immune from suit. The remaining category, which are not immune from suit, are the RPBs. They are those bodies which are already responsible for the conduct of members of their profession, such as the Law Society and the Institute of Chartered Accountants. The amendment, therefore, seeks to obtain immunity for RPBs.

In Committee, we sought to obtain an amendment for RPBs in the same terms as for SROs. There is a difference in this amendment. The immunity now being sought for RPBs is an immunity solely from the actions of their members or others over whom RPBs will have the responsibility to supervise. Under this amendment, immunity from investors is no longer being sought for RPBs. With the qualification that this limited form of immunity is now being sought, I put the amendment before your Lordships.

At an earlier stage in another place only the SIB had immunity from suit. After some time, on Report in another place, the Minister, Mr. Michael Howard, was eventually persuaded that SROs should be treated in the same way as the SIB.

In support of that change of stance by the Government, in another place the Minister said: 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 action that it believed to be necessary. That would not be in the interests of investors".

The Minister then said: There is a real danger that individuals might be reluctant to work for or serve on the governing bodies of SROs if there was 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".

The prospective RPBs say that the same rules and considerations should apply to them. It has been argued by the Government—the noble Lord, Lord Diamond, responded in Committee—that claims against RPBs will not be so large and that therefore there is no necessity to give them the same immunity from suit as is given to SROs.

I have some doubt as to whether that argument is correct. It is not an argument in principle, but—to coin the words of the noble Lord, Lord Diamond—is merely an argument "in scale'. RPBs believe that they should have the same immunity as SROs. If any of your Lordships are in doubt as to the nature of that immunity, it is not immunity from all suits. It will be possible to bring actions against SROs and the SIB when, for example, an authorised person thinks that he has been wrongly suspended from being an authorised person or that his certificate has otherwise been wrongly withdrawn. It will be open to such a person to bring an action in the courts for some form of injunctive relief. The immunity which applies here to the SIB, SROs and RPBs is immunity from suits in damages.

It appears that the Government have recognised at a late stage that there is some validity in the argument which has been pressed upon them for so long by RPBs. I am happy, therefore, to note that Amendment No. 40 appears in your Lordships' Marshalled List. It may seem that I am also about to move that amendment because it still appears under the names of myself and the noble Lords, Lord Morton and Lord Ezra. Your Lordships should know, however, that there has been an error in the Marshalled List and that this amendment has been tabled by the noble Lord, Lord Lucas.

Under the government amendment it would be possible for RPBs to invite their membership or persons who have been certificated under the Act to enter into a contract with the RPB under which that member, or the person who has been certificated, undertakes not to issue proceedings for damages against the RPB. By tabling that amendment, the Government have at long last recognised the principle; namely, that to ensure the efficacy and effectiveness of the Bill RPBs should also be given immunity. The Government having recognised that point, my argument is that the only proper and fair way for the matter to be dealt with is in the way that I and the other noble Lords who have tabled the amendment have attempted to deal with it; in other words by putting this provision on to the face of the Bill.

If that is the principle, why should not RPBs have their immunity declared in the same way as that of the SROs and the SIB? Another difficulty with the Government's proposal is that RPBs believe that such a provision would be unacceptable to their membership and that therefore they would not be able to obtain immunity by that route. That is a second difficulty that lies in the way of the government amendment. However, the principle is there, and if it is, I ask—this is why I am moving the amendment—why cannot RPBs be treated in the same way as SROs and the SIB, particularly as they are now only asking for limited immunity of suit from their own members or those certificated and not from the investor?

The amendment is directed entirely to the interests of the investor. Persons of calibre should be willing to serve on the appropriate committees of the Law Society and the Institute of Chartered Accountants. That is important to ensure the efficient working of the Act. It all comes within the area of co-operation, because that is the type of co-operation that the Government require of RPBs to ensure the effective conduct of the Act. The Government must want persons of calibre to serve on SRO and RPB committees, and yet by not agreeing to the amendment they are structuring the Bill, concerning RPBs, in a way that may discourage some people from serving on the committees and helping the Act to be effective. I beg to move.

Lord Morton of Shuna

My Lords, I support the amendment. My noble friends and I did not support the amendment for immunities for RPBs in Committee because it was a blanket immunity. This immunity is restricted. It allows the public to sue the professional body. In our view the Government were completely illogical when they said that there should be total immunity for the SIB and SROs but no immunity for RPBs. Our view has always been that there is a good case for an immunity on the lines of the immunity in this amendment for all three—that they should be protected against those they control, but that they should not be protected against the public. That is, in effect, the amendment, Amendment No. 41, to which I shall be speaking some time later this evening. However, as it is already incorporated in this amendment, I support it.

Viscount Chandos

My Lords, on behalf of my noble ally Lord Ezra, and from these Benches, I should like to add my support to that of the noble Lord, Lord Morton of Shuna, for this amendment. Much discussion has taken place at every stage of the Bill about the question of immunity. It is a difficult question. But consistency must be the most desirable element to introduce to the Bill at this stage. I hope that your Lordships will support the amendment.

Lord Bruce-Gardyne

My Lords, I have considerable doubts about the amendment. I accept entirely, as the noble Lord, Lord Hacking, argued, that it is consistent with the decision taken in another place to give total immunity to the SIB and in particular to the SROs. I believe that this was a thoroughly mistaken move. I do not believe that the Government should have been somewhat bluffed, as I see it, into agreeing to give legal immunity to the SROs. I do not believe that, on the whole, we improve matters by compounding an original error, as it seems to me that this amendment would do. I am not all that enthusiastic, I am bound to admit, about the government amendment, Amendment No. 40, either. My problem is this. The noble Lord, Lord Hacking, has fairly pointed out that if this amendment was carried it would be open to members of an RPB who had their licence wrongfully refused or withdrawn by the RPB to obtain restitution in the courts. That is true. But what benefit does it serve such a person to have his licence restored in this way? His trade and business will have been destroyed.

A member who has had his licence withdrawn or refused by the governing body—by the SRO or the RPB—would have his reputation in tatters and his ability to trade destroyed. I submit that there is no way in which restitution through the courts of his ability to carry on business would compensate him for that damage. Indeed it is, I would submit, only by his ability to obtain damages that he can possibly recover some of the harm that may have been done to him by the wrongful removal of his ability to trade. That is why it seems to me, I must honestly admit, that the legal immunity given to the SROs is open to considerable objection, and all the more reason why we should not compound it by extending immunity in so far as RPBs are concerned in dealings with their members. For that same reason, I do not see much in it to commend Amendment No. 40 either, notwithstanding the assurance by the noble Lord, Lord Hacking, that that amendment would be inoperative because the membership—understandably, I think—would decline to enter into such a contract.

Lord Chorley

My Lords, I should like to add my support to the amendment in the names of the noble Lord, Lord Benson, and others. I should perhaps first declare an interest as a practising accountant. My institute attaches a good deal of importance to the amendment on the basis that half a loaf is better than no loaf at all. I do not believe that the noble Lord, Lord Bruce-Gardyne, has made quite the right point. The argument for half a loaf becomes all the more compelling if the regulatory authority is denied immunity against litigation by investors, as the noble Lord, Lord Hacking, says. In these circumstances, the RPB will have to act even more swiftly and decisively and with even less evidence perhaps than would otherwise be the case in order to ensure that it has escaped any possibility of litigation by an investor. Surely, it is the corollary that the RPB will be even more vulnerable to litigation by those that it authorises to engage in investment business and that immunity against such litigation will become even more important.

I suspect that without this amendment my institute would not wish to become an RPB. The Government may not feel that this is a bad thing. I do not know. It would however seem to destroy one element of the approach to self-regulation which is the spirit of the Bill. I hope therefore that the Government will accept the amendment. We are offering half a loaf.

6.45 p.m.

Lord Cameron of Lochbroom

My Lords, in speaking to this amendment I shall also speak to the government amendment, Amendment No. 40. I wish to make clear at the outset that I shall be inviting your Lordships to accept that amendment and not the amendment moved by the noble Lord, Lord Hacking. When we discussed this subject briefly at Report stage, I set out the Government view on the matter. I take up a point made by my noble friend Lord Bruce-Gardyne. We are talking here about an extension of the principle of immunity. The point from which the Government have always worked is that there should be no immunity unless the Government have been satisfied that the public interest requires it and there is no other course open.

On the face of it, the Bill does not at present prevent an RPB attaching a condition to the issue of a certificate to the effect that the certified person undertakes not to sue for damages in respect of any act or omission by the body in pursuit of its functions under the Bill. This approach seems to us to reduce the problems that would attach to a statutory immunity of the kind conferred on RSROs. I should perhaps observe in passing that the noble Lords, Lord Hacking and Lord Chorley, suggested that the professional bodies would not be satisfied or at least that their members would not be satisfied. But, after all, what we are talking about is the certificate that would enable them to conduct investment business under the aegis of their professional body. It would he a matter for the individual members to determine what their approach should be.

If a statutory immunity were granted, it might be very difficult to determine whether it applied in particular circumstances because of the dual functions of RPBs in regulating professional practice as well as investment business carried on in the context of such a practice. These are the only bodies that have, as it were, that dual capacity. Thus a single regulatory breach, such as a breach of clients' accounts rules, might relate both to investment business and to the practice of the profession in question. Similarly, disciplinary action might he taken on the basis of a variety of breaches, some related to investment business and some not. In either case the extent of a statutory immunity would be unclear. To some extent this is an inherent problem in relation to any immunity relating to the RPBs' regulation of investment business.

However, if the immunity derives from a condition attaching to the issue of the certificate, it should be possible to define with much more precision, having regard to the circumstances and the particular rules of the professional body involved, the scope of the immunity, and, if problems arose, to amend the scope of that immunity without the need for primary legislation. That seems to us to be the preferable approach. However, it has been put to us that, for a number of technical reasons, an RPB might not, at least without specific provision have the power to impose a condition of the kind I have described. We accept that a number of the potential RPBs might be deterred from applying if it were not possible to secure this protection from suit by the persons they regulate, and the government amendment therefore gives RPBs the necessary power.

We believe that this effectively meets the legitimate concerns of potential RPBs. I would wish to make absolutely clear that we are not talking of the same kind of organisations as SROs. There the circumstances are entirely different. In their case the uncertainties to which I have referred about the scope of immunity do not arise, since the principal purpose of SROs is the regulation of investment business. For RPBs that is only an incidental purpose. It is therefore preferable that the matter is dealt with in an agreement between the RPB and its members, the people it regulates. Moreover, in the case of SROs the immunity extends to suit by investors, and that could not be achieved without statutory provision to that effect.

I have explained the Government's position. I would hope in the light of what I have said, and the principles upon which we have operated throughout in the provision of immunity in this Bill, that the noble Lord might feel able to withdraw his amendment. Otherwise I have to invite the House to reject it.

Lord Hacking

My Lords, I am very grateful to all noble Lords who have participated in this debate. It is clear that I have not persuaded the Government to change their minds. It is therefore my intention to test the opinion of the House and to call for a Division. Since we are approaching the dinner hour and I do not want any noble Lords who may wish to vote on this matter to be prevented from doing so I shall restrain myself—while thanking every noble Lord who has spoken in this debate—and reply to one point made by the noble and learned Lord, Lord Cameron. He focused upon the difficulty of distinguishing the extent of immunity, and mentioned clients' money.

The noble and learned Lord questioned whether, when moneys are being also handled for purposes other than investment, there might be a difficulty in applying immunity. Noble Lords who have listened to the debates throughout the length of this Bill will know that in clause after clause there are difficulties in application; and that where those difficulties exist it is for the courts to decide. That is an argument that has been produced from the Government Front Benches.

The other riposte to this argument by the noble and learned Lord is that exactly the same problem will exist whether one does it by the contractual route, which is proposed in government Amendment No. 40, or by the statutory route, which I suggest in my Amendment No. 36. This difficulty—that, in any event, is capable of resolution by the courts—will exist whether your Lordships accept government Amendment No. 40 or the amendment of myself and other noble Lords, Amendment No. 36.

I have said enough. It is time for me to press this amendment.

6.53p.m.

On Question, Whether the said amendment (No. 36) shall be agreed to?

Their Lordships divided: Contents, 63; Not-Contents, 92.

DIVISION NO. 3
CONTENTS
Airedale, L.	Hacking, L. [Teller.]
Ampthill, L.	Halsbury, E.
Birk, B.	Hampton, L.
Bonham-Carter, L.	Hanworth, V.
Brockway, L.	Harris of Greenwich, L.
Chandos, V.	Hayter, L.
Chitnis, L.	Heycock, L.
Chorley, L.	Hylton-Foster, B.
Cledwyn of Penrhos, L.	Jeger, B.
Craigavon, V.	Kennet, L.
Dean of Beswick, L.	Kilbracken, L.
Diamond, L.	Kilmarnock, L.
Donoughue, L.	Kinloss, Ly.
Elwyn-Jones, L.	Kirkhill, L.
Gallacher, L.	Lawrence, L.
Greenway, L.	Llewelyn-Davies of Hastoe, B.

Lloyd of Kilgerran, L.	Stewart of Fulham, L.
Lockwood, B.	Stoddart of Swindon, L. [Teller.]
Lovell-Davis, L.
McIntosh of Haringey, L.	Strabolgi, L.
McNair, L.	Taylor of Mansfield, L.
Monson, L.	Terrington, L.
Morton of Shuna, L.	Tordoff, L.
Mountevans, L.	Turner of Camden, B.
Napier and Ettrick, L.	Underhill, L.
Nicol, B.	Whaddon, L.
Phillips, B.	White, B.
Seear, B.	Williams of Elvel, L.
Seebohm, L.	Winchilsea and Nottingham, E.
Shannon, E.
Shaughnessy, L.	Winterbottom, L.
Silkin of Dulwich, L.	Ypres, E.
Stedman, B.

NOT-CONTENTS
Alexander of Tunis, E.	Kimball, L.
Auckland, L.	Lane-Fox, B.
Barber, L.	Lauderdale, E.
Bauer, L.	Layton, L.
Beaverbrook, L.	Limerick, E.
Beloff, L.	Long, V.
Belstead, L.	Lothian, M.
Bessborough, E.	Lucas of Chilworth, L.
Blyth, L.	Lyell, L.
Boardman, L.	Macleod of Borve, B.
Boyd-Carpenter, L.	Mancroft, L.
Brabazon of Tara, L.	Margadale, L.
Bruce-Gardyne, L.	Merrivale, L.
Buckinghamshire, E.	Mersey, V.
Butterworth, L.	Molson, L.
Caithness, E.	Munster, E.
Cameron of Lochbroom, L.	Murton of Lindisfarne, L.
Campbell of Croy, L.	Onslow, E.
Carnock, L.	Orkney, E.
Cathcart, E.	Orr-Ewing, L.
Colville of Culross, V.	Pender, L.
Colwyn, L.	Portland, D.
Constantine of Stanmore, L.	Rankeillour, L.
Cox, B.	Reay, L.
Davidson, V. [Teller.]	Redesdale, L.
Denham, L. [Teller.]	Renton, L.
Dilhorne, V.	Renwick, L.
Eden of Winton, L.	Rodney, L.
Elliot of Harwood, B.	St. Davids, V.
Elton, L.	Sandford, L.
Fairfax of Cameron, L.	Selkirk, E.
Faithfull, B.	Sharples, B.
Fortescue, E.	Skelmersdale, L.
Fraser of Kilmorack, L.	Strathclyde, L.
Gardner of Parkes, B.	Swinfen, L.
Gibson-Watt, L.	Tranmire, L.
Grantchester, L.	Trumpington, B.
Gray of Contin, L.	Vaux of Harrowden, L.
Gridley, L.	Vickers, B.
Grimston of Westbury, L.	Vivian, L.
Hailsham of Saint Marylebone, L.	Ward of Witley, V.
	Westbury, L.
Harmar-Nicholls, L.	Whitelaw, V.
Hesketh, L.	Wise, L.
Hives, L.	Wynford, L.
Home of the Hirsel, L.	Young, B.
Hooper, B.

Resolved in the negative, and amendment disagreed to accordingly.

7.1 p.m.

[Amendment No. 37 not moved.]

The Deputy Speaker (Lord Strabolgi)

My Lords, I have to inform the House that Amendments Nos. 38, 39 and 39A should be read in conjunction with the correction slip to the Bill. I also have to inform your Lordships that Amendments Nos. 39, 39A and 40 should be in the name of the noble Lord, Lord Lucas of Chilworth.

[Amendment No. 38 not moved.]

Lord Cameron of Lochbroom moved Amendments Nos. 39 and 39A: Page 163, line 20, leave out ("or designated agency") and insert (", designated agency or transferee body"). Page 163, line 24, at end insert ("or of such arrangements as are mentioned in section 39(4)(b) above").

The noble and learned Lord said: My Lords, perhaps I may speak to this amendment and Amendment No. 39A. These amendments are minor. Your Lordships will have been reminded just now that the print of the Bill suggests that they have already been made. However, unfortunately at Report stage these amendments were not moved. With the leave of the House, I now beg to move both amendments.

On Question, amendments agreed to.

Lord Cameron of Lochbroom moved Amendment No. 40: Page 163, line 25, at end insert— ("(6) A recognised professional body may make it a condition of any certificate issued by it for the purposes of Part I of this Act that neither the body nor any of its officers or servants or members of its governing body is to be liable 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. (7) The functions to which subsection (6) above applies are the functions of the body so far as relating to, or to matters arising out of—

1. (a) the rules, practices and arrangements of the body to which the requirements in paragraphs 2 to 5 of Schedule 3 to this Act apply;
2. (b) the obligations with which paragraph 6 of that Schedule requires the body to comply;
3. (e) any guidance issued by the body in respect of any matters dealt with by such rules as are mentioned in paragraph (a) above;
4. (d) the powers of the body under the provisions mentioned in subsection (2)(d) above pr under section 54(3) above; or
5. (e) the obligations to which the body is subject by virtue of this Act.").

The noble and learned Lord said: My Lords, I have already spoken to this amendment. I beg to move.

On Question, amendment agreed to.

Lord Beaverbrook

My Lords, I beg to move that the further proceedings after Third Reading be now adjourned until eight o'clock.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 7.3 to 8 p.m.]

Proceedings after Third Reading resumed on Clause 187.

Lord Morton of Shuna moved Amendment No. 41: Page 163, line 25, at end insert— (" (6) The exemption from liability for damages in subsections (1), (3) and (4) is an exemption only from liability to pay damages to the following persons—

1. (a) any member of that organisation or body;
2. (b) any person whether authorised or not whom that organisation or body is authorised by this Act to investigate or supervise.").

The noble Lord said: My Lords, this amendment standing in the name of my noble friend Lord Williams of Elvel and myself is to restrict the immunity given to the SIB (or the delegated agency as it is in the Bill) and SROs to an immunity in liability for damages only to actions at the instance of members of the organisation or body, or any person whom the body has authorised or whom the body is authorised to investigate or supervise.

The purpose of this amendment is to restrict the immunity in the way narrated, which is the same way as was spoken to by the noble Lord, Lord Hacking, in moving Amendment No. 36 in respect of professional bodies. The question of immunity for the SIB, if I may refer to it as such, and the SROs is one on which I think it is fair to say the Government have changed their mind. They started off with no immunity, and then in the face of objections in another place changed wholly and gave them a blanket immunity.

The argument in favour of immunity is that it is necessary that the body, the SRO or the delegated agency, should have freedom to act without fear. I quite see that this is valid when one considers the possibility of being sued for damages by people who are either suspended or disqualified from acting as authorised persons or by people who apply to be authorised persons and are refused that authorisation. But the whole purpose of this Bill is protection of the public, and there is one obvious and major omission if the blanket immunity goes through.

If one has the situation that one imagines some authorised person to be a crook who takes money from investors and then disappears, there is no remedy for the persons defrauded, in the same way as, for example, the people who had policies under the Fire, Auto and Marine Insurance Company had no remedy because the person involved was not able to pay. There is no remedy except the compensation fund.

We are told that the compensation fund—we are told by the press, not by the Government—may have a maximum limit of £30,000. If that is so one can imagine a situation, for example, where a widow is getting elderly and wishes to sell her house, possibly in the South-East of England where apparently house prices are fairly high. She wishes to sell her house in order to pay for her stay in an old people's home, a nursing home or whatever at £200 or £300 a week. Her house is valued at perhaps around £100,000, which from what we are told would be a fairly cheap house in the South-East of England.

She gets defrauded by somebody who is an authorised person, whom quite erroneously and negligently the SRO concerned has authorised. The maximum compensation she would receive would be £30,000 under the compensation fund, and the negligent SRO can do nothing about it. It is that situation that we consider is not covered by the Bill. It should be covered by the Bill. One should not give an immunity which protects the market and not the investor.

The purpose of the Bill is to protect the investor and not the market maker and the investment adviser. The whole purpose of the Bill is to protect the investor from these people, and yet by granting a blanket immunity this is not covered. I beg to move.

Lord Cameron of Lochbroom

My Lords, I recognise that the noble Lord has raised an extremely important point. The Bill is intended to provide investors with the protection they deserve. Against that background it will be understood that the Government thought long and hard before concluding that the organisations involved in providing this protection should be immune from actions for damages brought at the suit of investors. Nonetheless, we concluded on balance that such immunity should be provided.

I think that the noble Lord has deployed the arguments that he used in advancing a similar amendment (although not in precisely the same terms) in Committee, with perhaps what I might call one or two interesting additions by way of example. But once again he has failed to convince us that the existing provisions are wrong.

It must be remembered that not all investors are small private investors. The largest companies and institutions will also be investors, and their financial resources will far outstrip those of even the most powerful self-regulating organisation. If regulators 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 difficult issues in deciding when to remove a business's 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 sold and the problem will be resolved.

The interests of existing clients and others already dealing with a business will often suffer if authorisation is removed, but such action will nevertheless be necessary to prevent harm to future clients. Existing clients and those dealing with a business would, of course, suffer more seriously if the business collapsed. But they may claim that the regulator's action was unnecessary and that the business would not have collapsed if given more time. They might then bring an action for damages against the regulator on the grounds that their loss was the direct result of the regulator's action.

For example, a United States securities firm might use a British RSRO member to manage its clients' United Kingdom portfolios. If the RSRO expelled the British business, or stopped it undertaking particular activities, for instance, because of concern about its solvency, the United States firm might sue the RSRO for the loss it suffered as a result—missed opportunities, damage to reputation and the like. This threat could be a very serious one, and could put the RSRO's future at risk. Regulators should not have this kind of threat hanging over them when taking difficult decisions. If they do, the quality and effectiveness of regulation will suffer and the interest of investors will suffer too. Investors will not be deprived of remedies. They will still be able to sue an authorised person if he breaches the rules applying to him, and they will, as the noble Lord recognised, have access to the compensation arrangements where appropriate.

I am always cautious about entering into arguments about particular cases or analogies which the noble Lord opposite has put forward, but he speaks about a "crook". I think one has to be very careful in using that kind of language in present circumstances. I would simply say that RSROs no doubt will be careful in the kind of persons who will be authorised under their rules. As I say, there is, in addition to the pursuit of the authorised person if he breaches the rules, the access to compensation arrangements.

It is particularly important to note that the compensation proposals which the SIB has put forward are biased in favour of small private investors. I shall not speculate on the limit the SIB may impose, but it will help to ensure that the interests of such investors—those I can fully understand the noble Lord opposite being concerned about—will not be seriously affected by the immunity granted under this clause which is necessary for the reasons I have outlined. That being so I regret that I cannot accept this amendment, and if the noble Lord does not withdraw it, I invite the House to reject it.

Lord Morton of Shuna

My Lords, if the amendment which was proposed from this side of the House to have a realistic figure to protect the small investor—which we suggested was £100,000—had been put into the compensation fund, there might be something to it. But if what we read in the press of a figure of £30,000 is to be the limit, and if the Government will not accept a limit of not less than £100,000, it is plainly ridiculous. I say that because £30,000 is really very low when it comes to widows or Aunt Agathas (as they were called when we were considering this part of the Bill at Second Reading) realising the value of a house when they move into a home for the elderly. The figure of £30,000 is really very low, and if it is to be the limit of the compensation fund, it is quite ridiculous.

I used the word "crook" advisedly because the whole purpose of the Bill is to protect the investor against people who are crooks. There are people who go around taking money from unsuspecting widows, Aunt Agathas, and whatever, and then disappear. They cannot usually be found, and, if found, they are not worth suing. It is in precisely that situation that people require the protection of this Bill. That is what the amendment seeks to achieve. The Government cannot say, first, that they reject our amendment for the compensation fund to have a minimum figure of £100,000 and, secondly, that there is no need for this because people will be compensated by the compensation fund. With the current state of house prices, ordinary investments and the cost of going into old people's homes it is not on, and I regret to say that I must seek the opinion of the House.

8.15 p.m.

On Question, Whether the said Amendment (No. 41) shall be agreed to?

Their Lordships divided: Contents, 30; Not-Contents, 54.

DIVISION NO. 4
CONTENTS
Airedale, L.	Dean of Beswick, L.
Chandos, V.	Donoughue, L.
Chitnis, L.	Elwyn-Jones, L.
Cledwyn of Penrhos, L.	Hanworth, V.
David, B.	Houghton of Sowerby, L.

Kilmarnock, L.	Ponsonby of Shulbrede, L. [Teller.]
Llewelyn-Davies of Hastoe, B.
Lockwood, B.	Seear, B.
Lovell-Davis, L.	Stoddart of Swindon, L. [Teller.]
Mackie of Benshie, L.
McNair, L.	Tordoff, L.
Monson, L.	Turner of Camden, B.
Morton of Shuna, L.	Underhill, L.
Nicol, B.	White, B.
Phillips, B.	Williams of Elvel, L.
Pitt of Hampstead, L.	Ypres, E.

NOT-CONTENTS
Ampthill, L.	Home of the Hirsel, L.
Auckland, L.	Hooper, B.
Barber, L.	Lane-Fox, B.
Bauer, L.	Lawrence, L.
Beaverbrook, L.	Layton, L.
Belstead, L.	Limerick, E.
Boardman, L.	Long, V.
Brabazon of Tara, L.	Lucas of Chilworth, L.
Bridgeman, V.	Lyell, L.
Butterworth, L.	Margadale, L.
Caithness, E.	Mersey, V.
Cameron of Lochbroom, L.	Monk Bretton, L.
Carnock, L.	Munster, E.
Constantine of Stanmore, L.	Murton of Lindisfarne, L.
Cox, B.	Orr-Ewing, L.
Craigavon, V.	Redesdale, L.
Davidson, V. [Teller.]	Renwick, L.
Denham, L. [Teller.]	St. John of Bletso, L.
Faithfull, B.	Seebohm, L.
Ferrers, E.	Sharples, B.
Gibson-Watt, L.	Skelmersdale, L.
Gray of Contin, L.	Swinfen, L.
Greenway, L.	Trefgarne, L.
Grimston of Westbury, L.	Trumpington, B.
Hayter, L.	Vaux of Harrowden, L.
Hesketh, L.	Whitelaw, V.
Hives, L.	Wynford, L.

Resolved in the negative, and amendment disagreed to accordingly.

8.22 p.m.

Lord Williams of Elvel moved Amendment No. 42. After Clause 193, insert the following new clause: ("Offence under Building Societies Act 1986 .—It shall be an offence for any building society authorised under the Building Societies Act 1986 to dispose of a Class 1 or Class 2 advance (as defined in that Act) or any interest in such advance to a person other than another authorised building society and then only with the permission of the Building Societies Commission.").

The noble Lord said: My Lords, I beg to move Amendment No. 42 which stands in my name and in that of my noble friend Lord Morton of Shuna. I have given notice to the Government on several occasions, not least in the passage of the Building Societies Bill, that I intended to move this amendment to the Financial Services Bill. We have established as a result of discussion which took place at the Report stage that secondary market in mortgages represents dealings in investments; in other words, if a building society or any other organisation deals out—and I use that expression—of an interest in a mortgage, this constitutes an investment under the provisions of this Bill.

The Building Societies Act did not include a clause, which we tried to insert during the passage of the Bill through your Lordships' House, to prohibit building societies from selling their mortgages to others, be they independents on the open market, be they other societies or banks. The fundamental issue is this. If I or anybody else takes out a mortgage with a building society, I am entitled to know that that building society will hold that mortgage and that I will be indebted to that building society for the lifetime of the advance. We understand that there are other operators in the market (and we discussed this on Report) who hold themselves out as providing mortgages on the basis that they will sell their interest in those mortgages on the secondary market. The noble Lord, Lord Lucas, was kind enough to clarify the point that I made on what at that time I said was a narrow issue, that these would constitute investments under this Bill.

This for us is an important social issue. It seems to be offensive that a building society may be able in the future to contract a mortgage, to lend money to a householder on the security of his property, the householder contracting with whatever building society it may be—Nationwide, the Leicester or any other building society which is controlled by the Building Societies Commission—and then find at some later date that his mortgage has been sold to somebody else. The amendment that I am moving seeks to prevent that situation other than the sale of such a mortgage advance to another building society, and only then with the authorisation and permission of the Building Societies Commission. I do not have to elaborate on this matter because I know that my noble friends on these Benches support me, if I may say so, to the last ditch on this particular amendment.

It is for us a fundamental point that if somebody decides to borrow money for the purpose of buying a house; they should be secure in knowing that their lender is not going to trade out that issue to other people, lenders unknown and, indeed, on the secondary market. In introducing this factor into this Bill I am only giving effect to what I said, I think, at the Report stage of the Building Societies Bill when it came to your Lordships' House. I tried to introduce it then, but I was told that it was not proper and that I should introduce it at a later stage. By that time the Building Societies Bill was enacted, so I said that I would introduce it here. I believe that your Lordships understand fully the issues involved. I simply content myself by saying once again that this is a matter of the utmost social importance. I beg to move.

Lord Lucas of Chilworth

My Lords, I am grateful to the noble Lord, Lord Williams, for the way he has explained the purport of his amendment. Of course, I acknowledge that he gave us notice during the passage of the Building Societies Bill that he was unhappy about these matters and would want to raise them again. I acknowledge straightaway his concern that he is looking at the wider field of the social aspect.

In the last few years, at any rate, the assignment of mortgages has been rare. I think he would acknowledge that. The legal issues correspondingly have been somewhat academic. The general rule is that a mortgage can be assigned without the consent of the borrower, by the mutual nature of building societies means that their borrowers, as members, are in a rather different position; and the case law seems to suggest that a building society mortgage can effectively only be assigned with consent obtained either specifically or in the mortgage deed.

But the mortgage market is changing. Some banks have sold mortgages. A number of new institutions are entering the market offering mortgages which are specifically transferable. But we must remember in discussing these matters that there is not as yet a secondary mortgage market in the United Kingdom as there is in the United States. We are therefore addressing ourselves this evening to a development of the future. I do not quarrel about that.

I think I should make it abundantly clear that the Government have no difficulty in agreeing with the noble Lord, Lord Williams, that the interests of borrowers are a primary concern in the development of such a market. But it is fair to point out that the industry, too, is conscious of the need to protect borrowers. The Building Societies Association earlier this year formulated a draft code of practice in this area, and of course the Government welcomed this. It is clear that there is strong support in the industry for an agreed statement of practice for the protection of borrowers. Recognising the interest that a mortgage borrower has in determining where his mortgage ends, I have to tell your Lordships that the Government themselves have acted to ensure that the protection of borrowers in this areas is not forgotten.

We have set up a joint study group to examine these market developments and the need for borrower protection. The study group consists of officials and representatives from all sections of the mortgage industry, and not just the building societies. It is making some progress and my anticipation is that it will report by the turn of the year.

The Government's position then is that, provided we can be satisfied that there is adequate protection for borrowers and that there are no prudential problems, we would not wish to resist these market developments. We do not believe that securitisation of this sort must of necessity be damaging. The developments may in fact prove advantageous to consumers, since they will provide another means of raising funds in the wholesale market. They may improve the market for housing finance and may also lead to greater consumer choice in the mortgage market.

It follows therefore that we do not believe it is right to legislate now. It may indeed be neither necessary nor desirable to legislate at all if an adequate voluntary code of practice can be agreed—and all of us are working towards this. The noble Lord's new clause would inhibit the growth of the secondary mortgage market, and I do not think that is what he intends. I do not believe he intends that it should, as it would, restrict consumer choice.

The suggested clause is also curiously one-sided in its application. It would apply to, and restrict, building societies but not banks; and that does not reflect the present structure of the mortgage market. It would place a restriction on building societies which would not apply to their main competitors.

I promise the noble Lord, Lord Williams, that I listened very carefully to what he said because I recognised at the outset his great concern; but I listened in vain for a justification of what can only be described as inequitable treatment. The noble Lord's amendment is not fair, and I believe it is in fact untimely. The Government are aware of the need to protect borrowers, and we are already acting. As I have suggested, we expect this joint study group to make its report by the turn of the year. We can then turn our attention to the outcome of the report. In the meantime, I would invite the House to reject the new clause as suggested in the amendment.

Lord Williams of Elvel

My Lords, as always, I am grateful to the noble Lord for his explanation of the Government's point of view. I find myself, as often on these occasions, in enormous difficulty, just as I was during the passage of the Building Societies Bill in your Lordships' House. I was told then that all this was a matter for discussion and that I should not move this particular clause in regard to the Building Societies Bill. I am now told that all this is still a matter for discussion and there is a joint study group which will be reporting by the turn of the year. There may or may not be draft codes of practice which may be observed by this, that or the other. I find myself again with a Bill which I seek to amend before your Lordships' House. With each Bill that comes to your Lordships' House I am told, "You cannot put it into this Bill; you will have to wait for some group or other to report." I ask: What is the next Bill that I can use properly to achieve what we have in mind?

Draft codes of practice and joint study groups are all very well; a report by the end of the year—all that is perfectly all right. But I am bound to say that the Building Societies Act does not apply to banks. There was no suggestion during the passage of that Bill that it applied to banks, and my amendment seeks to concentrate on building societies.

If the noble Lord talks about consumer choice, my goodness! there are any number of building societies and the consumer can choose between one or another. We went through all this during the passage of the Building Societies Bill in your Lordships' House. So let the noble Lord not talk to me about consumer choice, because there really is enough of that. Indeed, I accepted at the time we discussed Schedule 1 at the Report stage that there would be people who would wish to offer mortgage facilities and trade them in the secondary market. I mentioned an American investment bank which had set up a company to do so; but no doubt there will be others. These are people who have specifically set themselves up for this purpose. These are not building societies. Building societies, as I maintained at great length (as did my noble friend Lord Barnett) when we were discussing that Bill, do have the mutuality concept and they do have a local relationship which needs to be preserved. Indeed the Government accepted that.

I do not know where we go from here, because I cannot retract this amendment unless I get some assurance from the Government about what I seek to achieve and what I think the noble Lord seeks to achieve, because he is as aware as I am of the social implications of what we are talking about: that the joint study group, the draft code of practice or whatever it is that emerges from these vague discussions that are taking place but which are not specified, actually achieve what my amendment seeks to achieve. If the noble Lord can give me that assurance then I shall be perfectly happy. But, if not, then I am bound to say we on this side of the House feel that this is an important social problem: that somebody who takes out a mortgage with a building society should be entitled to know that for the life of that mortgage he will be a debtor to that building society and not anybody else, unless it is another building society, and then with the permission of the Building Societies Commission.

I hope very much that the noble Lord will be able to give me the assurance that the draft code of practice, the joint study group and all the rest of it will be able to satisfy me because, if not, I am afraid we have a very serious problem here.

Viscount Chandos

My Lords, I wonder whether I may ask the noble Lord, Lord Williams of Elvel, a question. Does he not think that the provisions he would propose to make for the building societies would in fact reduce their ability to provide mortgages to their customers and, in so doing, reduce their competitiveness against other financial institutions which may be more prone to sell off the mortgages to other institutions?

Lord Williams of Elvel

My Lords, I believe I was asked that question before I sat down and I will respond to it before I sit down. No, I do not believe that is the case. I believe it is perfectly clear in the Building Societies Act under what terms they agree mortgages. I believe it is perfectly clear that there are other institutions which, rightly or wrongly—and I make no judgment on this at all—offer facilities which are traded on the secondary market. I think the two should be kept quite separate.

I insist on the relationship—as we insisted on it throughout the passage of the Building Societies Bill—between the building society and the customer. Once that relationship is destroyed, one destroys the whole foundation of the building society movement. I stood at this Dispatch Box and my noble friend Lord Barnett stood at this Dispatch Box before he was translated to other Benches, and we made this point time and time again. Government spokesmen accepted that point, so I do not for a moment believe that what I am proposing would inhibit building societies from competing. They are, after all, given access to the wholesale money markets; they will be able to compete on rates; I do not believe they will be disadvantaged in any way by what I suggest. I simply suggest that for the purposes of the Building Societies Act 1986 the assurances we were given by the Government, that they respected the mutuality of the building societies and the relationships that building societies had with their customers, be written into this Bill.

Lord Lucas of Chilworth

My Lords, with the leave of the House, I should like to make an attempt to give the noble Lord, Lord Williams, the assurance he seeks. There is no desire and no wish at all that any action of the Government, through either the Building Societies Act 1986 or indeed through this Bill, should in any way at all destroy the building society movement. I am quite sure the noble Lord accepts that.

I have said, and I repeat, that we recognise and share the concern of the noble Lord, Lord Williams, with regard to the social implications of a secondary mortgage market. It is essential that a borrower should know all the conditions to which his agreement attaches. What I said was that we would set up a study group with officials and representatives from all sections of the industry, and not just the building societies. I think the noble Lord will know that the Law Commission produced a report on mortgages and there was a consultation paper which sought views on a wide range of issues, including this particular issue. The consultation paper discusses the transfer of mortgages, identifies reasons why borrowers should be consulted before transfer and so on. That paper itself will be considered by the joint study group.

I cannot say, and I am sure that the House will recognise that I cannot say, what will be in the code until it is drafted. What I can say is that, in the absence of a voluntary agreement which is satisfactory to all the parties that will have made contributions, I would not rule out legislation if it were needed. That is the concern we share with the noble Lord. If the problems which he poses prove to be insurmountable in any other way, then I give the assurance that this Government would not rule out legislation in order to bring to a satisfactory conclusion the fears that the noble Lord expresses.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for what he has just said. Once again I find myself in the dilemma that we are putting the problem off to another day. I am glad that the noble Lord recognises the problems we have on this side of the House. I give notice to the noble Lord that when the joint study group (whatever it may be) produces this code of practice (whatever that may be), if we find that unsatisfactory, we on this side will he asking for a full debate in your Lordships' House on that code of practice; and if the Government cannot satisfy us that that code of practice meets our objections, then we will be pressing the Government for legislation in the way that the noble Lord has indicated. I see the noble Lord nodding and I think that that is a satisfactory end to the debate. I am sure he understands our problems, and, in the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 196 [Financial assistance for employees' share schemes]:

8.45 p.m.

Lord Lucas of Chilworth moved Amendment No. 43: Page 171, leave out lines 17 to 20.

The noble Lord said: My Lords, I beg to move Amendment No. 43, which is purely technical. It corrects an error in an amendment made on Report which unfortunately left the law of Northern Ireland out of step with that in the rest of the United Kingdom. I beg to move.

On Question, amendment agreed to.

Clause 200 [False and misleading statements]:

[Amendment No. 44 not moved.]

Clause 202 [Offences by bodies corporate, partnerships and unincorporated associations]:

Lord Morton of Shuna moved Amendment No. 45: Page 177, line 18, leave out from first ("partner") to ("shall") in line 20.

The noble Lord said: My Lords, if I may speak to Amendments Nos. 45, 46, 47 and 48, these amendments are concerned with the question of whether it is for the prosecution to establish that a partner is ignorant or for the defence of that partner to establish that the partner is ignorant. Clause 202 provides, in subsection (3) with which Amendment No. 45 is concerned, that: Where a partnership is guilty of an offence under this Act every partner, other than a partner who is proved to have been ignorant of or to have attempted to prevent the commission of the offence, shall also be guilty of that offence and be liable to be proceeded against and punished accordingly". Amendment No. 47 relates to unincorporated associations other than partnerships and it follows the same course.

At the Committee stage on 29th July at col. 806 of the Official Report, I raised the question of where the onus would lie and the noble and learned Lord the Lord Advocate had the good fortune to be elsewhere on that day. The noble Lord, Lord Lucas, reluctantly attempted to answer the question on a matter of law. He answered that the onus would lie upon the prosecution. If that is correct, it is an impossible onus.

Having been a partner in a professional firm at an earlier stage in my professional life, I know that a partnership is rather like a marriage; it does not keep minutes of proceedings and it is difficult to prove who did what and all the rest of it. The only way in which this type of offence can effectively be dealt with is to make this a defence. If a partnership is guilty of an offence, every partner other than a partner who proves himself to have got out by either of the ways suggested in subsection (3) is guilty.

As a matter of practicality the only way that this can be done—and the amendments I am speaking to try to do this—is that it shall be a defence for that partner to establish his particular disagreement with his partners or his ignorance. Otherwise the position is quite impossible, standing on the right to silence (which I trust that the Government are not attempting to abolish) if one is charged with a criminal offence. The right to silence is an important constitutional right. I think in America it is the Fifth Amendment, but it is certainly just as important in Scotland and I hope in England and Wales and in the United Kingdom that a person has the right, when accused, to stay silent.

The question is how the prosecution could ever establish that a partner was not ignorant of an offence. Proving a negative is quite impossible. I shall be interested to hear the answer. I understand it may be suggested that this is a formula that has been used in other legislation. If so, as we cannot refer in the courts to any debate in either your Lordships' House or another place, I shall be interested to know whether this subsection, if it is copied from another Act, has been tested in the courts and, if so, to what result. I beg to move.

Lord Cameron of Lochbroom

My Lords, I understand the noble Lord's reasons for returning to this matter, having raised it initially in Committee. Perhaps I could just put the record straight. I think that my noble friend who was called upon to respond at that time indicated that the onus of proof of the offence will lie upon the prosecutor, the person who brings the charge. I am glad to say—and I give my noble friend 10 out of 10 for this—that he was absolutely correct as concerns proving that the partnership has committed an offence. But I do not think that answers the point which the noble Lord raised about the position of individual partners. Indeed, I think my noble friend indicated that he would like to take further advice on the matter and I now find myself here to answer the point.

Having looked into the matter and taken advice, I can tell the House that my understanding is that under the clause the onus of proof will lie on the person seeking to avoid liability for the offence by relying on the statutory exception to such a liability. Therefore what we are concerned with here are statutory exceptions to liability for criminal offences.

If I may take the case of the partnership, if a partnership is proved to have been guilty of an offence, the subsection provides that every partner will also be guilty and liable to prosecution and punishment accordingly, unless he is a partner who is proved to have been ignorant of, or to have attempted to prevent the commission of, the offence. There is therefore in the view of the Government no need for these amendments to achieve what I think is a mutually desirable result as regards onus of proof.

The noble Lord deduced correctly that I would make reference to analogous provisions. These are to he found in the Banking Act 1979, which, as noble Lords will know, received the Royal Assent on 4th April 1979. It is only fair to say to the noble Lord that my investigations do not suggest there has been any judicial interpretation of those provisions, but nevertheless they are exactly analogous to what is sought here.

I make one further point on this set of amendments. Leaving aside what I am advised are certain minor drafting difficulties, there is a more important point which I raise in relation to Amendment No. 48, because that alters the position in the Bill in a way which is not acceptable. It purports to add a defence for officers of unincorporated associations. Under the clause as it is drafted, such officers are liable only if they are bound to fulfil the duty of which the breach is an offence. We consider that this is as it should be, but that it would create confusion to add a defence available to officers which would cut across the circumstances specified in which officers are liable. That being so, and for all these reasons, I invite the noble Lord to withdraw the amendment.

Lord Morton of Shuna

My Lords, it is always interesting to listen to the noble and learned Lord and it is fascinating to know that the Banking Act contains the same provision. If it has not been tested in the courts, we just do not know what the result will be. I should have thought as a matter of pure English that "a partner who is proved" means that he is proved by somebody else, and if it is a partner who "proves that he", that is a proof by him. But I do not wish to delay the House any longer. It will be interesting to see how the courts interpret this, because our discussions are not capable of being referred to in any court. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 46 to 48 not moved.]

Clause 205 [Regulations, rules and orders]:

Lord Cameron of Lochbroom moved Amendment No. 49: Page 179, line 33, after ("(4)") insert ("Except as otherwise provided").

The noble and learned Lord said: My Lords, I spoke to this with Amendment No. 21. I beg to move.

On Question, amendment agreed to.

Schedule 1 [Investments and investment business]:

Lord Williams of Elvel moved Amendment No. 50: Page 189, line 2, after ("if") insert ("under the terms of the contract").

The noble Lord said: My Lords, this amendment comes out of a discussion that was held at Report stage. It is a clarificatory amendment, if I may use that expression, and I hope very much that the Government will feel able to accept it. I beg to move.

Lord Cameron of Lochbroom

My Lords, I am very happy to accept the clarification.

On Question, amendment agreed to.

Schedule 2 [Requirements for recognition of self-regulation organisation]:

The Deputy Speaker (Lord Hayter)

My Lords, the next amendment, which is No. 57 is, in fact, Amendment No. 51.

Lord Lucas of Chilworth moved Amendment No. 51 Page 203, line 42, leave out from ("include") to end of line 45 and insert ("a number of persons independent of the organisation and its members sufficient to secure the balance referred to in sub-paragraph (1)(b) above.").

The noble Lord said: My Lords, I beg to move Amendment No. 51, which your Lordships will remember arises from noble Lords opposite succeeding at Report stage in amending the references to independent representatives on SRO boards. Whatever the merits or demerits of that amendment, all I would say about the one which I am moving this evening is that it is drafting, designed to improve slightly on the wording of the amendment to the paragraph which noble Lords succeeded in getting the House to agree during Report stage. I commend this amendment to the House.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for his introduction to this amendment. I did not detect a great note of enthusiasm in his voice as he moved it, but I hope that he recognises the justice of our case and indeed the fact that your Lordships' House voted against the Government on the principal issue, and that as time goes by he will develop a great deal more enthusiasm. In the meantime, we do not oppose this amendment.

On Question, amendment agreed to.

Schedule 5 [Listed money market institutions]:

Lord Lucas of Chilworth moved Amendments Nos. 52 to 62: Page 207, line 30, leave out from beginning to end of line 35 and insert— ("TRANSACTIONS NOT SUBJECT TO MONETARY LIMIT 1. This Part of this Schedule applies to any transaction entered into by the listed institution as principal (or as agent for another listed institution) with another listed institution or the Bank of England (whether acting as principal or agent) if the transaction falls within paragraph 1A or 2 below. 1A.—(1) A transaction falls within this paragraph if it is in respect of an investment specified in sub-paragraph (2) below and"). Page 209, line 1, leave out from ("(1)") to ("by") in line 5 and insert ("A transaction falls within this paragraph if it is a transaction by which one of the parties agrees to sell or transfer an investment falling within paragraph 2 or 3 of Schedule 1 to this Act and"). Page 209, line 14, leave out from beginning to end of line 23 and insert— ("TRANSACTIONS SUBJECT TO MONETARY LIMIT 3.—(1) This Part of this Schedule applies to any transaction entered into by the listed institution—

1. (a) as principal (or as agent for another listed institution) with an unlisted person (whether acting as principal or agent);
2. (b) as agent for an unlisted person with a listed institution or the Bank of England (whether acting as principal or agent); or
3. (c) as agent for an unlisted person with another unlisted person (whether acting as principal or agent),

if the transaction falls within paragraph 1A or 2 above and the conditions in paragraph 4 or, as the case may be, paragraph 6 below are satisfied. (2) In this Part of this Schedule and in Part III below "unlisted person" means a person who is neither a listed institution nor the Bank of England. 4.—(1) In the case of a transaction falling within paragraph 1A above the conditions referred to above are as follows but subject to paragraph 5 below."). Page 209, line 25, leave out ("paragraph 1") and insert ("paragraph 1A"). Page 209., line 28, leave out ("paragraph 1") and insert ("paragraph 1A"). Page 209, line 31, leave out ("paragraph 1") and insert ("paragraph 1A"). Page 209, line 33, leave out ("paragraph 1") and insert ("paragraph 1A"). Page 209, line 37, leave out ("paragraph 1") and insert ("paragraph 1A"). Page 209, line 39, leave out ("paragraph 1") and insert ("paragraph 1A"). Page 209, line 43, leave out from beginning to end of line 30 on page 210 and insert— ("5. The conditions in paragraph 4 above do not apply to a transaction entered into by the listed institution as mentioned in paragraph (a), (b) or (c) of paragraph 3(1) above if

1. (a) the unlisted person mentioned in paragraph (a) or (b) or, as the case may be, each of the unlisted persons mentioned in paragraph (c) has in the previous eighteen months entered into another transaction in respect of an investment specified in paragraph 1A(2) above;
2. (b) those conditions were satisfied in the case of that other transaction; and
579
3. (c) that other transaction was entered into by that person (whether acting as principal or agent) with the listed institution (whether acting as principal or agent) or was entered into by that person through the agency of that institution or was entered into by him (whether acting as principal or agent) as a result of arrangements made by that institution.

6. In the case of a transaction falling within paragraph 2 above the condition referred to in paragraph 3 above is that the consideration for the sale or transfer must be not less than £100,000."). Page 210, line 38, leave out from beginning to end of line 23 on page 211 and insert— ("8. Subject to paragraphs 9 and 10 below, this Part of this Schedule applies to any transaction arranged by the listed institution which—

1. (a) is entered into by another listed institution as principal (or as agent for another listed institution) with another listed institution or the Bank of England (whether acting as principal or agent);
2. (b) is entered into by another listed institution (whether acting as principal or agent) with an unlisted person (whether acting as principal or agent); or
3. (c) is entered into between unlisted persons (whether acting as principal or agent),

if the transaction falls within paragraph 1A or 2 above. 9. In the case of a transaction falling within paragraph 1A above paragraph 8(b) and (c) above do not apply unless either the conditions in paragraph 4 above are satisfied or—

1. (a) the unlisted person mentioned in paragraph (b) or, as the case may be, each of the unlisted persons mentioned in paragraph (c) has in the previous eighteen months entered into another transaction in respect of an investment specified in paragraph 1A(2) above;
2. (b) those conditions were satisfied in the case of that other transaction; and
3. (c) that other transaction was entered into by that person (whether acting as principal or agent) with the listed institution making the arrangements (whether acting as principal or agent) or through the agency of that institution or was entered into by that person (whether acting as principal or agent) as a result of arrangements made by that institution.

10. In the case of a transaction falling within paragraph 2 above paragraph 8(b) and (c) above do not apply unless the condition in paragraph 6 above is satisfied.").

The noble Lord said: My Lords, we have just been discussing Amendment No. 51 and I hope that, by virtue of my agreement to the Question put by the noble Lord on the Woolsack, I have demonstrated my enthusiasm to the noble Lord opposite. I should like to move Amendments Nos. 52 to 62. This is a rather large group of amendments, but it fulfils the undertaking which the Government gave at Report stage to bring forward revised amendments to clarify the position of transactions entered into by a listed institution as an agent or with a person who is acting as an agent.

At the time I discussed with the House the probability that this would prove to be fairly extensive redrafting of the schedule. The question of the capacity in which a person is acting arises in a number of places throughout the schedule and the position has had to be clarified on each separate occasion.

The effects of the amendments can, however, be summarised quite briefly. First, they make it clear that if a listed institution enters into a transaction with another person which it is entitled to treat as a wholesale counterparty, it does not need to concern itself with whether the other party is acting as a principal or as an agent. The exemption applies in either case. Secondly, the amendments make it clear that the exemption applies to a listed institution which is itself acting as an agent for another person if the listed institution is entitled to treat both his principal and the other party to the transaction as wholesale counterparties.

Finally, the amendments clarify the previous transactions which can be taken into account in determining whether a person can be regarded as a wholesale counterparty even though the immediate transaction is under the prescribed monetary limits. If the person has entered into any previous relevant transaction over those limits with or through the agency of the listed institution or as a result of arrangements made by the listed institution, that person can be treated as a wholesale counterparty.

This is a somewhat complex provision. I apologise to your Lordships for the fact that it has taken us a number of attempts to get it right. But from the conversations which we have had, I believe that we have now done so. I beg to move.

9 p.m.

Lord Williams of Elvel

My Lords, I am most grateful to the noble Lord for his response to the problem that we raised at Report stage. I think he recognised at that time that the Opposition raised some of the problems to which these amendments respond. From a fairly brief look at these amendments—because they are, as the noble Lord says, rather complex—I believe that they satisfy what we had in mind.

Viscount Chandos

My Lords, I spoke both at Report and at Committee stage on a number of the matters dealt with in these amendments and I should like just to add my words of thanks to the noble Lord, Lord Lucas, for covering in these amendments all the subjects that I raised then.

On Question, amendments agreed to.

Schedule 7 [Qualifications of designated agency]:

Lord Lucas of Chilworth moved Amendment No. 63: Page 213, line 40, at end insert— ("and the composition of that body must be such as to secure a proper balance between the interests of persons carrying on investment business and the interests of the public.").

The noble Lord said: My Lords, your Lordships will recall that noble Lords opposite and noble Lords on the Liberal Benches raised the question of representation on the SIB. It was the noble Lord, Lord Taylor of Gryfe, who moved an amendment, although he was supported by the noble Lord, Lord Williams. At that time I indicated to the House that an amendment of this nature concerning the composition of governing bodies of a designated agency would be brought before your Lordships.

The amendment is similar to one concerning the composition of the governing bodies of SROs to which your Lordships have already assented and which, I am happy to agree, the Government should not have altered. The schedule already provides that the members of the governing body of a designated agency must be drawn from persons with experience of investment business and other persons as described in the schedule. This amendment provides that the composition of the body overall must be sufficient to ensure a proper balance between the interests of those who carry on investment business and the public. This has always been our intention. The amendment, however, makes it an express requirement. I beg to move.

Lord Williams of Elvel

My Lords, I am most grateful to the noble Lord for his introduction of the amendment and for the note of slightly greater enthusiasm that I think I detected in his moving it. I should like to ask him one question to which I hope he will be kind enough to respond. We agree that the interests of the public should be protected; that is is to say, the composition of the body must be such as to secure a proper balance between the interests of persons carrying on investment business and the interest of the public. We are very happy with these amendments but I hope very much that the noble Lord will spend a little time telling us what is his definition of "the public" so that we can all be quite clear what the test of the Bill as it is at present drafted and amended means and what the Act, if the Bill is enacted, will mean.

Lord Lucas of Chilworth

My Lords, with the leave of the House, I shall try to tell the noble Lord how I interpret "the public". What we are talking about here is independent non-practitioner or lay representation on the SIB. For example, the present non-practitioner members of the board are Mrs. Rachel Waterhouse of the Consumers' Association; Mr. John Clement of Unigate; Mr. John Kerridge of Fisons; and the Honourable Garry Runciman of Walter Runciman plc. Indeed, there is also Mr. Roy Croft, the chief executive of the SIB. Those are board members; they are non-practitioner members. They are people representing various aspects of a very broad spectrum of the public.

I hope that that explanation shows how we see the general public being represented. There has to be a balance of those kind of people against those who are purely practitioners in one or other of the areas that will come under the aegis of the SIB. Your Lordships will know that there is a limit, so to speak, on the numbers that a board of this description can properly accommodate.

It will be ultimately for the Secretary of State to determine at the time that the agency has its delegated powers as to whether that balance is right. In the event of any change in the numbers or in the complexion of the board, it will be for the Secretary of State to determine that the balance which the amendment seeks to put into the Bill is maintained.

On Question, amendment agreed to.

Lord Lucas of Chilworth moved Amendment No. 64: Page 214, line 27, at end insert— (" (2) The arrangements must make provision for the investigation of complaints in respect of authorised persons to be carried out in appropriate cases independently of the agency and those persons.").

The noble Lord said: My Lords, this amendment implements the assurance given on Report that the Government would bring forward an amendment requiring a designated agency to have arrangements for the independent investigation of complaints against authorised persons. The amendment requires such independent investigation only in appropriate cases.

I think that the noble Lord, Lord Morton of Shuna, recognised this when he moved a similar amendment concerning SROs on Report. It would not be desirable to require all complaints to be the subject of independent investigation. I think he accepted that. I think we agreed that it may well be quicker and easier to resolve some complaints in other ways, but it is right—this is what the noble Lord pointed out—that an investor should normally have recourse to an independent person if his complaint has reached the designated agency, the top supervisory body in the system, and still has not been satisfactorily resolved.

I am glad to say that the SIB is in any case planning to set up an ombudsman system. This is what I sought to say by way of reassurance to the noble Lord at the time that we discussed it. However, I welcome this move. The amendment will make some such arrangement a requirement if powers are to be transferred to a designated agency.

I hope that the amendment meets the points that the noble Lord made in what was a fairly long debate on the matter, in which I recall having suggested that what the noble Lord was looking for was an appeal system. He said at that time, no, it was not a second tier or appeal system that he was looking for, but he wanted an independent agency in the event of a complainant not being totally satisfied in the first instance. I hope that the amendment, which I commend to your Lordships, meets the noble Lord's requirement in this degree.

Lord Morton of Shuna

My Lords, the amendment is to be welcomed. I regret that, in the numerous times I tried to say it, I obviously did not manage to make it clear enough to the noble Lord, Lord Lucas, but I certainly said it often enough to he classified as having shouted it loud and clear, even if I did not go and shout it in his ear. I am pleased to welcome the amendment.

On Question, amendment agreed to.

Schedule 8 [Principles applicable to designated agency's rules and regulations]:

Lord Lucas of Chilworth moved Amendment No. 65: Page 215, line 34, leave out ("48(2)(i) of this Act") and insert ("48 of this Act regulating action for the purpose of stabilising the price of investments").

The noble Lord said: My Lords, this is consequential upon Amendment No. 10.

On Question, amendment agreed to.

Schedule 9 [Designated agencies: status and exercise of transferred functions]:

[Amendment No. 66 not moved.]

[Amendment No. 67 not moved.]

Schedule 10 [Regulated insurance companies]:

Lord Beaverbrook moved Amendment No. 68: Page 222, line 37, leave out ("section 72") and insert ("sections 72 and 73").

The noble Lord said: My Lords, this is a technical consequential amendment following the addition to the Bill at Report stage of what is now Clause 73 dealing with winding-up orders in Northern Ireland.

On Question, amendment agreed to.

Schedule 11 [Friendly societies]:

Lord Lucas of Chilworth moved Amendment No. 69: Page 233, line 19, leave out ("Sections 48(7) and (8) and 50 of this Act shall apply in relation to rules under this paragraph as they apply") and insert ("Section 50 of this Act shall apply in relation to rules under this paragraph as it applies").

The noble Lord said: My Lords, again this is consequential upon Amendment No. 10, which we discussed earlier.

On Question, amendment agreed to.

Lord Lucas of Chilworth moved Amendments Nos. 70 to 72: Page 233, line 22, leave out ("references") and insert ("reference"). Page 233, line 23, leave out ("references") and insert ("a reference"). Page 233, line 25, leave out ("of section 50").

The noble Lord said: My Lords, these amendments are consequential upon Amendment No. 10, to which I have already spoken. I beg to move.

On Question, amendments agreed to.

9.15 p.m.

Lord Lucas of Chilworth moved Amendment No. 73: Page 236, line 45, leave out from ("actionable") to end of line 46 and insert ("at the suit of a person who suffers loss as a result of the contravention subject to the defences and other incidents applying to actions for breach of statutory duty.").

The noble Lord said: My Lords, my noble and learned friend discussed this amendment with Amendment No. 25. I beg to move.

On Question, amendment agreed to.

Schedule 12 [Takeover offers: provisions substituted for sections 428, 429 and 430 of Companies Act 1985]:

Lord Morton of Shuna moved Amendment No. 74: Page 251, line 6, leave out from ("defrayed") to end of line 8, and insert ("on any basis which is reasonably equitable out of any of the monies or other property held on trust pursuant to subsection (9) above").

The noble Lord said: My Lords, I regret to advise that there is an error in this amendment. It should read: Page 251, line 6, leave out from ("defrayed") to end of line 8", and so on. The amendment is not so drastic as to take out down to line 46. I do not know what has gone wrong, but the sense is perhaps fairly clear. I apologise for the error which no doubt is my fault.

The amendment has been suggested by and is supported by the Law Society of Scotland.

Subsection (15) is at present worded: The expenses of any such enquiry as is mentioned in subsection (11) or (13) may be defrayed out of the money or other property held on trust for the person or persons to whom the inquiry relates.". These words strictly interpreted—as no doubt a court would strictly interpret them—suggest that the expenses of inquiring after the former holders for whom funds are held in trust must be separately calculated in relation to each individual holding and may only be charged against each such holder's interest irrespective of the size of the holding; that is, on a per head rather than a proportionate basis. This might well have an undesirable effect, inhibiting cautious companies and registrars from making any inquiries in respect of smaller holdings due to the disproportionate share of costs which small holdings would be required to bear.

This is not acceptable in relation, for example, to the cost of circulating annual accounts or dividends to small shareholders and there is a strong case for giving reasonable latitude on how expenses are allocated simply in order to prevent this being a stumbling block. I beg to move.

The Deputy Speaker (Lord Airedale)

My Lords, the amendment proposed is page 251, line 6, leave out from ("defrayed") to the end of line 8 and insert the words as printed. That is not what appears on the Marshalled List.

Lord Cameron of Lochbroom

My Lords, now that the noble Lord has put right the clear error in the amendment as printed I am glad to say that there is nothing between the noble Lord and myself in terms of ultimate objectives. I believe, however, that as it stands the subsection achieves the outcome we both want.

The drafting is permissive. It provides expressly for costs to be paid out of property held on trust for beneficiaries to whom the inquiry relates but does not say anything about the basis on which such payments must be made. It is unnecessary to do so since trustees are under a general obligation to act reasonably and equitably in the interest of each beneficiary. Whether any basis of allocation is reasonable and equitable will depend on the circumstances of the case but if trustees consider it justifiable to divide costs in a particular way there is nothing in the subsection as it stands which would prevent them doing so.

I appreciate the intention behind the amendment. As I said, I have taken advice and considered the matter, but since the amendment would achieve nothing I suggest that the noble Lord might be prepared to withdraw it.

Lord Morton of Shuna

My Lords, if the noble and learned Lord assures me that the point is covered, I will of course take that assurance.

However, the Bill refers to expenses in paragraph 15—if it is a paragraph and not a subsection; I am not quite certain! I am sorry to hear the noble and learned Lord using an English word like "costs"; but I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Morton of Shuna moved Amendment No. 75: Page 255, line 26, at end insert— ("430G—The provisions of Section 430A (which provides a right for a minority shareholder to be bought out by the offeror under a takeover offer) shall apply also in relation to a takeover purchase (being a transaction or series of transactions whereby over a period of not more than four months a person or two or more persons acting jointly and any associate of any of them has acquired or contracted to acquire on the same terms some (but not all) of the shares of a company which amount to nine-tenths in value of either all the shares of the company or all the shares of any class or classes of the company) as if

1. (i) the takeover purchase was a takeover offer relating either (as the case may be) to all the shares in the company or to any class or classes of shares of the company,
2. (ii) the purchaser or joint purchasers were the offerors or joint offerors under such offer,
3. (iii) the shares acquired or contracted to be acquired under the takeover purchase had at the time of the takeover purchase (or, if there be more than one transaction constituting the takeover purchase, the date of the earliest transaction which caused the minimum requirement for a takeover purchase to be satisfied) and before the end of the period within which the offer could be accepted, been acquired or contracted to be acquired by virtue of acceptance of the offer,
4. (iv) the holder of any shares which are the same or, as the case may be, of the same class as those comprised in the takeover purchase and have not been included in the takeover purchase was a holder of shares or class of shares to which a takeover offer related who had not accepted the offer, and
5. (v) the terms of the acquisition under the takeover purchase were the terms of the offer.").

The noble Lord said: My Lords, this is a rather lengthy amendment to the provisions set out in Schedule 12, which replaces a section of the Companies Act of 1985 dealing with takeovers. The problem arises because the sections dealt with in Schedule 12 that relate to takeover offers start off with a new Section 428(1), which defines the meaning of "a takeover offer", and the definition is different from the definition in Section 428(1) of the Companies Act. The new Section 428(1) in Schedule 12 (and in referring to "this Act" it is not referring to the Financial Services Act but to the Companies Act 1985) says: In this Part of this Act 'a takeover offer' means an offer to acquire all the shares, or all the shares of any class", whereas the present Section 428(1) of the Companies Act states that: This section applies where a scheme or contract involves the transfer of shares or any class of shares". There is a difference in the wording. The purpose of this amendment is to cover the case of the minority shareholder and is to give the minority shareholder the same right to be bought out where a 90 per cent. holding of shares or a class of shares of a company is acquired without the use of a takeover offer as it is if the takeover offer is used.

Without such a provision the acquirer of the 90 per cent. interest could avoid the obligation to buy out the minority shareholder by structuring his purchase in the form of a sale and purchase agreement in regard to the 90 per cent. stake without even inviting the minority shareholder to participate in the sale. There is a stronger case for providing this remedy for the "locked-in" minority shareholder in that situation than in the circumstances stated in the new Section 430A, where the minority shareholder has been given and has declined an opportunity to escape from his minority position by accepting the offer.

Although the drafting of the existing provisions in the 1985 Act is not free from doubt, they appear at least open to the interpretation that they extended to such a situation as the amendment is intended to cover. The standard textbook on takeovers and mergers (Takeovers and Mergers by Weinberger and Blank, 4th edition, paragraph 1462) supports the view that the words "scheme or contract" may permit a minority shareholder to insist on his shares being acquired whatever the circumstances of the acquisition of the majority stake.

However that may be, the protection of the minority shareholder in the circumstances has a merit of its own which should be recognised in any reformulation of the existing statutory provisions and should not be rejected merely on the ground that it may be outside their present scope. It is wrong that the majority shareholder should have to resort to the courts for protection should he find himself in a minority position as a result of a transaction in which he has not been allowed to participate and where he would have been given a chance to extricate himself from his minority position if that position had resulted from a takeover offer which he had a chance to accept or reject.

With your Lordships' permission and perhaps for the convenience of the House, I should like to speak also to Amendment No. 76, which is really the mirror image of that amendment. This amendment seeks to give the purchaser who acquires a 90 per cent. holding of shares or a class of shares of a company otherwise than by virtue of an acceptance of a takeover offer the same right to buy out the minority shareholders as would have been available to an offeror under a takeover offer. It is designed to meet the case where agreement is reached, between the purchaser and the holders of 90 per cent. of the stock, on the terms for the acquisition of their holdings, and the transaction is effected by means of a sale and purchase agreement without the use, or the need for the use of a takeover offer.

There may be a number of reasons why the agreement cannot be extended to all shareholders of the company or the class, but those are broadly in line with the reasons why acceptances would not have been forthcoming if a takeover offer had been made. They will range from the desire to extract some extra payment for the removal of the final obstacle to total ownership to a lack of interest or incapacity to make up their minds on the part of non-assenting shareholders.

In addition, there can be difficulties in obtaining 100 per cent. assent where some of the shareholders are untraceable or are executors or trustees who do not have the authority, or at the time are not yet empowered, to enter into a contract of sale.

Those considerations, which are grounds for the compulsory acquisition provisions which arise under a takeover offer, apply with equal force in the case of the acquisition of an overwhelming majority of shares or class of shares of a company by means of a sale and purchase agreement. Without them the purchaser will either have to resort to the fiction of a takeover offer or accept what the Greene Committee, on whose recommendations the provisions were originally enacted, called the "oppression of the majority by the minority".

The need for a facility such as that intended by the amendment is especially important in relation to the smaller private company with a limited number of members where the considerable expense and delay involved in structuring the takeover, such as in a reconstruction or rescue situation, could provide a major obstacle to the speedy and cost-effective implementation of a takeover which, if it is not achieved in respect of all the shares of a company, will be incapable of producing the benefits intended to be derived from it. Without such a facility the benefit of the provisions will be principally available in respect of large public takeovers and will be denied in respect of smaller business entities.

It is perhaps reasonably clear that I did not draft these amendments. They are put forward and supported by the Law Society of Scotland. Instead of listening to noble Lords opposite reading something at speed, it is a pleasant change to have the chance myself to read something. I hope that the Minister will have a convincing answer. I beg to move.

Lord Cameron of Lochbroom

My Lords, I fully understand the points that the noble Lord has put forward. I would correct him only in one regard in his lengthy quotation. The textbook to which he referred is in fact by Weinberg and not by Weinberger and Blank. That may indicate the source of his text. The Government cannot accept these amendments.

The noble Lord put forward his argument on two bases. The first was that there was doubt about existing provisions of the Companies Act and that the schedule can therefore be said to narrow the scope of the provisions of the Companies Act; and that the matter can be interpreted as permitting compulsory acquisition either on the offeror's own initiative or at the instigation of a minority shareholder, even if the offeror acquired his 90 per cent. stake in the company without making an offer for that shareholder's shares.

The noble Lord's second point was that if that was not the case, it should be. With due respect to the noble Lord on the first leg of his argument, I disagree with his interpretation of the existing provisions. The crucial point is not the kind of offer involved. With regard to the present provisions and the schedule, it is immaterial whether one is talking about a full-blown public bid or a private sale and purchase agreement on the lines which have been alluded to. The important point is the scope of the offer. It has always been a cardinal principle of the provisions that only holders of shares to which the offer relates can exercise the right to require the offeror to buy them out or have their shares compulsorily acquired by him. Section 428 of the Companies Act as it presently stands, refers to "dissenting shareholders", while Section 429 gives the right to be bought out to persons, who have not assented to the scheme or contract". I am advised—the noble Lord perhaps disagrees—that only shareholders who have received an offer can be said to have had the opportunity to assent or dissent.

As to the second leg of the argument, it would follow that if we were to adopt these amendments, they would represent a radical change in the ground rules underlying the provisions of the Companies Acts. The effect would be not only to make the right to compulsory acquisition available where an offer does not cover all the shares in a company or all the shares of a particular class—contrary to the policy laid down in Section 428 of the schedule, which implements recommendations made by the Jenkins Committee and by Professor Gower, and endorsed, I understand, by both the Law Society and the Law Society of Scotland itself—but also to extend it to shares for which no offer has been made.

I do not believe we should go down that road. In the case of compulsory acquisition by the offeror, the result would be that an individual shareholder could find his shares compulsorily acquired as a result of purchases made without his knowledge and, quite conceivably, without full disclosure of information relevant to determining the true worth of the shares. That can only be wrong in principle and it would open the way to the surreptitious, creeping acquisition of shares.

So far as concerns the minority, I accept that the circumstances are different and that here the case for the amendment may be much stronger. But I have to say that in the Government's view it would create many more problems than it might solve. For instance, offerors would not know where they stood, since their offers would be deemed to extend to persons to whom they had not directed the offer, and that might well be deliberately so. Thus, they would effectively lose the right to define the scope of their own offer. It would also make what is already a complex set of provisions even more difficult to operate.

I have to say that this is not just my view: it is also the view of practitioners in the field whom we have been able to consult in the limited time available since the amendment was first put down. For these reasons—because it would involve a very radical departure the extent of which it is impossible to define at this stage—I invite the noble Lord to withdraw the amendment. If he were not to do so, I would invite the House to reject the amendment.

9.30 p.m.

Lord Morton of Shuna

My Lords, the only point I should like to make is that I did raise this matter at Second Reading. It has been a matter of discussion between the Law Society of Scotland and the department for a considerable time. These amendments were put down but for various reasons were not moved on Report. So there has been no lack of notice to the Government.

There is, as usual, a disagreement between the Government and those on this side of the House on the interpretation. Speaking as a lawyer, I feel that it is encouraging that there are two views on interpretation. This may well be another matter on which the courts can be busy. Speaking from these Benches, I believe that it is a great pity that we cannot get clarity and a definite view of what the law should be. I do not wish to divide the House at this late stage of the Bill. I ask leave therefore to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 76 not moved.]

Schedule 13 [Disclosure of information]:

Lord Beaverbrook moved Amendment No. 77: Page 263, line 1, at end insert ("or paragraph 18 of Schedule 11 to ").

The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 27. I beg to move.

On Question, amendment agreed to.

Schedule 16 [Consequential Amendments]:

Lord Lucas of Chilworth moved Amendment No. 78: Page 281, line 35, at end insert— 1956 c. 53 ("29A. In section 101 of the Building Societies Act 1986— (a) For paragrpah (1)(a) there shall be substituted—

1. "(a) offer for sale or invite subscription for any shares in or debentures of the company or allot or agree to allot any such shares or debentures with a view to their being offered for sale;";
2. (b) in subsection (1) after the words "the effect of the offer" there shall be inserted the words "the invitation"; and
3. (c) in subsection (2) for the words "the public" there shall he substituted the words ", invite subscription for, " . ").

The noble Lord said: My Lords, I beg to move Amendment No. 78 and and speak to Amendment No. 79. These two amendments, applying as they do to other legislation, are consequential upon repeals already provided for in Schedule 17. I beg to move.

Lord Williams of Elvel

My Lords, can the noble Lord tell us why the word "subscription" in new paragraph 29A(a)(a) in this amendment is in the singular and not in the plural?

Lord Lucas of Chilworth

No, I cannot, my Lords.

On Question, amendment agreed to.

Schedule 17 [Repeals and revocations]:

Lord Lucas of Chilworth moved Amendment No. 79: Page 286, line 45, third column, after ("to") insert ("the Prevention of Fraud (Investments) Act 1958, paragraph 19 of Schedule 1 to the Scottish Development Agency Act 1975, paragraph 22 of Schedule 1 to the Welsh Development Agency Act 1975.").

On Question, amendment agreed to.

Lord Lucas of Chilworth

My Lords, I beg to move, That the Bill do now pass. We predicted on Second Reading that no one could seriously question a need either for investor protection in the financial services field or for a modern regulatory system which would encourage a strong, efficient and competitive financial services sector in this country. We emphasised at that time our willingness to respond to constructive suggestions for improving the Financial Services Bill particularly by your Lordships' House. This was welcomed by my noble friends and noble Lords opposite, particularly the noble Lord, Lord Williams of Elvel.

The basic core of the Bill and the regulatory structure it introduced has remained unchanged since the Bill was introduced in another place and since the Government set forth their intentions in the White Paper published in January 1985. I think that your Lordships' House has done a splendid job as a revising Chamber in examining the detail of the Bill. We have had a number of good debates which have provided guidance to the City in general and the Securities and Investments Board in particular on how we expect them to conduct affairs in this vitally important sector of our economy in the months and years ahead.

I should like to congratulate noble Lords on the thoroughness and good humour with which they have exercised their role as a revising Chamber, giving amendments proposed—whether government, opposition or cross-bench—close and detailed scrutiny. Your Lordships will recall that we have had moments of humour and of drama. On this side we have also had the odd defeat.

It is invidious on occasions such as this to mention individual noble Lords because of the important and useful contributions made by all noble Lords, reflecting their experience and interests, including those who sadly we see taking part in our debates less frequently than we should like. However, perhaps I may mention some contributions in particular. There were those from my noble friends Lord Boardman, Lord Colville of Culross, Lord Limerick and Lord Marshall. From the Cross-Benches we have heard from the noble Lords, Lord Hacking and Lord Tryon, and the noble and learned Lord, Lord Denning. All have brought their skills and experience to bear. I am glad that we have been able to accommodate more than one or two of their points. The Financial Services Bill (which I trust your Lordships will pass in a few moments) will clearly bear the imprint of all these contributions.

To turn to the Opposition, here I am personally very glad to say that there has been harmony as well as disagreement. Your Lordships' House has supported us on what we regarded as the essentials of the Bill and the new regulatory structure it introduces. The noble Viscount, Lord Chandos, and the noble Lords, Lord Ezra and Lord Taylor of Gryfe, put their points, as they frequently do, with force and distinction. While they have on occasions not been with us and the angels, we have been happy to accept some of their more technical points.

The noble Lord, Lord Wiliams of Elvel has—as indeed I expected from him—led the Opposition from the front. Obviously, he has revelled at being in the thick of things and sharing with us the benefits of his great experience in the City. Any noble Lord who before our debates thought that the City was simple—I include myself in that category—is much wiser as a result of the teaching of the noble Lord. I am indeed very grateful to him for the help that he has given to me and indeed your Lordships' House in this area.

The noble Lord, Lord Morton of Shuna, has always seemed most reasonable even when moving some of his most unreasonable amendments. Lord McIntosh of Haringey, as we have come to expect, spoke with a good deal of passion. The noble Lord, Lord Graham of Edmonton, as ever, was his most generous and gentlemanly self.

Perhaps I may now speak of my noble and learned friend Lord Cameron of Lochbroom, and my noble friends Lord Beaverbrook and Lord Brabazon of Tara. I should like to think that it was Lord Brabazon's handling of his part of the Financial Services Bill at Committee stage which sealed his promotion to the Department of Transport, on which I am quite sure we all congratulate him.

My noble friend Lord Beaverbrook has made—and I say this with great respect to him—an impressive start. However, I owe a particular debt of gratitude to my noble and learned friend Lord Cameron of Lochbroom whose knowledge not least of the law has been of so much assistance both to myself and to your Lordships' House in these matters. I hope your Lordships will endorse my appreciation of the efforts of officials, whose work tends to be more in the shadows. During the long Summer Recess they have all worked tirelessly in their negotiations with all the interested parties and institutions.

I think that none of us will forget the prime purpose of the Bill. It is designed both to protect the interests of investors and to encourage a strong, efficient and competitive financial services sector in this country. The basic thrust of the Bill and the regulatory structure it sets up have been supported by your Lordships' House while at the same time the House has helped us improve the technicalities of the Bill. We should all be most grateful for that.

I anticipate your Lordships passing this Bill. It will leave the House in much the same form but I believe in an improved shape. I commend the Bill to the House.

Moved, That the Bill do now pass.—(Lord Lucas of Chilworth.)

9.45 p.m.

Lord Williams of Elvel

My Lords, in responding to the Motion, That this Bill do now pass, I refer to the position which we have maintained, both in another place and in this House, of constructive opposition. We believe, and have believed, that it is better to have a Bill, however imperfect, rather than no Bill at all. I am sure that your Lordships have accepted that we have maintained that position throughout our debates. Nevertheless, I am bound to say to the Government that we still regard this Bill as being defective; and when the time comes—if the time comes—there will be amendments that we may seek to introduce.

The Bill now goes to another place from your Lordships' House, and no doubt there will be debates in the other place on some—indeed many—of the amendments that your Lordships have accepted. Many of these amendments—and I must say this—have been produced in something of a hurry, at rather a late stage, in great volume, and that has imposed an enormous burden on the Opposition in trying to cope with what the Government have put down. Sometimes we have had the feeling that the Government were writing the Bill on the run. Nevertheless we think we have managed to cope with this, and that the Bill is probably a somewhat better Bill as it leaves your Lordships' House than it was when it arrived.

I am greatly indebted to my noble friend Lord Morton of Shuna who has borne the heat and burden of the day in responding to the noble and learned Lord the Lord Advocate on many of the legal points to which this Bill has given rise. I am grateful also to my noble friend Lord McIntosh of Haringey who has made his contribution, and to the noble and learned Lord, Lord Silkin, who in turn made his contribution in the early stages of the debates.

I would join with the noble Lord, Lord Lucas, in congratulating the officials in his department who have been extremely hard working and most helpful to us as an Opposition in enabling us to overcome the problems to which I referred in the number and the volume of amendments with which we have had to cope.

Finally, I have, of course, to congratulate the noble Lord, Lord Lucas, himself on the way he has handled this Bill. I join, if I may, in my congratulations to him, congratulations to the noble and learned Lord the Lord Advocate. Both of them have been throughout an example of courtesy, efficiency and good temper, and we on this side are extremely grateful for that. The noble Lord, Lord Beaverbrook, has played his part. He has had a baptism of fire, but I am sure he will learn from this experience. We very much welcome him on the Government Front Bench and hope that in the future we shall more often see him defending more things, and perhaps in the future we may have some rather faster balls, if I may put it in that way, to bowl at him than we have bowled in this Bill.

In summary, I would say that we on the Opposition side are grateful to the Government for their courtesy in extending to us the privelege of debating this Bill. We feel that the Bill, now it goes to another place, has completed a satisfactory passage in your Lordships' House. We are grateful to the noble Lord, Lord Lucas, himself, and also, if I may say so now that I can speak in his presence, to the noble Viscount the Leader of the House for having helped this Bill along at certain rather difficult stages.

Viscount Chandos

My Lords, on behalf of my noble ally Lord Ezra and the Alliance Benches I should like to join the noble Lord, Lord Williams of Elvel, in paying tribute to the noble Lord, Lord Lucas of Chilworth, and the noble and learned Lord, Lord Cameron of Lochbroom, and their noble colleagues for their conduct of this Bill. If I were to mention with particular admiration their stamina, I hope your Lordships would not think that I was underestimating the many other virtues that they have shown and which this complex and important Bill has required.

The willingness of the noble Lords on the Government Front Bench to consider the concerns and representations of many professional bodies, and of representatives of the public interests, as well as the argument of your Lordships has, in itself, contributed to the slow, painstaking, but I hope not painful process of the Bill.

I still believe that a different starting point in striking the balance between statutory and self, or practitioner, regulation might have spared the noble Lords on the Government Front Bench and all of your Lordships' House some time and trouble, without affecting the final result. But that said, I believe that the labours of Hercules have on this occasion been fruitful and that a workable, worthwhile Bill will be put on the statute book; not perfect, but a clear step forward for investor protection without any unnecessary inhibition of the efficient workings of the financial markets for industrial or other users. On this particular day not all users of the financial markets will necessarily support the new technology; but I am confident that the new regulatory technology will not crash on its first day or, I hope, any other. I take great pleasure in commending the Bill to your Lordships' House.

Lord hacking

My Lords, I rise as the sole representative now on the Cross-Benches. While I observe in rising to speak that some of us wonder what creature of statute we have now created, we nonetheless wish this Bill well, and we hope that it may provide assistance to the City of London on this day of the Big Bang and here forward.

As noble Lords are well aware, this Bill has created a tremendous burden not only upon your Lordships within this Chamber, but upon those immediately outside this Chamber. It has placed a tremendous burden on our Doorkeepers and other Officers of Black Rod's Office. It has created a tremendous burden on our Refreshment Department and the reporters and editors of Hansard. This Bill is not the only burden that has been placed upon those who assist us immediately outside this Chamber, but it has been one of the contributory causes to the burden placed upon those who help us.

Therefore before this Bill passes us, certainly from these Benches, I should like to mention particularly the Public Bill Office. Possibly short of the noble Lords, Lord Lucas and Lord Williams, I think I have tabled more amendments—and possibly more late amendments—than any other noble Lord during the passage of this Bill. I have received a solid nod from the noble Lord, Lord Lucas, so I must be hitting a correct note there. The Public Bill office has received my late amendments with a friendliness and a helpfulness that has not always been reciprocated by the noble Lord, Lord Lucas, when he too has received my late amendments. All of those who have assisted us therefore in the immediate environment in this House have my personal thanks.

Outside this House, as the noble Lord, Lord Williams has already rightly paid tribute, there has been discussion with officials of the Department of Trade. I too have a certain responsibility in that direction. Even this last weekend officials of the Department of Trade were discussing my amendments at length over the telephone with representatives of the Law Society. I have particular reason for knowing and realising the amount of work and the contribution that has been received and given by the offcials of the Department of Trade.

On my own side I have received assistance from a number of bodies, but most particularly from the Law Society's standing committee on company law, which may not have started taking this Bill seriously until it reached your Lordships's House. It was not the only body outside this House which started taking it seriously once it reached your Lordships' House. But having started to take the matter seriously, the committee of the Law Society have put in an enormous amount of work. This has been recognised by the Government in the number of amendments that they have taken up since I moved them in the first instance in Committee. Beyond that, there have been other bodies such as the Stock Exchange, the CBI, the SIB and ISRO (the International Securities Regulatory Organisation) the London Commodities Exchange, Lloyd's and many others, who have approached me and other noble Lords during the passage of this Bill.

On each occasion I have been approached, great trouble has been taken in preparing the brief for me in order to explain to me what the problem is. Time has been taken up in meetings and preparaing written documents. For myself, I wish to express tremendous gratitude to all those persons. I also believe it signifies great respect for your Lordships' House that so many persons should have involved theselves for so many hours in working through on this Bill.

The Earl of Limerick

My Lords, it is perhaps symbolic that we should be considering the passage of this Bill on this day. In order that silence from this quarter of the Chamber be not mistaken for indifference, it would be right to reflect gratitude to my noble friends on the Front Bench and the officials concerned for the great help that has been given in considering the extremely complex issues raised before the House.

The future for the financial services sector in so far as it has changed today is uncertain. We can be certain only that nothing will be the same again and that nobody knows what the changes are going to be. But we now have a framework within which to work, and it was generally felt at the Second Reading that the approach was right and that we should tread this road of practitioner recognition; and personally I am in no doubt that many of the changes which have been imported in the course of our debates here have been constructive and helpful. This Bill has a good chance. We must wish it well and look to the future.

On Question, Bill passed, and returned to the Commons with amendments.