Inquisitorial Tribunals and Inquiries

HL Deb 16 February 1994 vol 552 cc208-39

3.21 p.m

Lord Boardman rose to call attention to the current procedures of statutory inquisitorial tribunals and inquiries investigating allegations of serious fraud and other misconduct; and to move for Papers.

The noble Lord said: My Lords, there are two problems each of my own making. First, in framing the Motion for debate I have opened up such a wide range of tribunals and inquiries that it may be difficult to see the wood for the trees. It may be helpful to my noble and learned friend Lord Rodger of Earlsferry to know that the wood upon which I shall be focusing will be the injustices and unfairness that can be occasioned to individuals who are participating in such inquiries and tribunals.

Secondly, I believe that if one criticises a particular system, there is an obligation to try to suggest remedies. I am in some difficulty because I can only repeat the findings and advice given by the Salmon Commission in 1966 and the Franks Committee in 1958, which made firm recommendations about the way in which the unfairness that can result from inquisitional inquiries can be reduced if not entirely eliminated. I shall be referring to those two bodies.

I acknowledge that the DTI, which is responsible for a wide range of inquiries under the Companies Act, has in its revised guidelines tried to strike a balance between public advantage and private rights. But at the end of the day the system of an inquisition— and these are inquisitions— cannot be entirely fair.

Tribunals and inquiries come in many shapes and sizes. I suppose that at the top of the list is a Royal Commission. I shall not dwell on that because it is a commission which looks into national policy and the like. The most prestigious inquiry is that held under the Tribunals of Inquiry (Evidence) Act 1921. It is also one of the rarest because there have been only 20 such inquiries since the passing of that Act. The Salmon Commission looked at the matter in 1966 and stated that that formal inquiry should be confined to nationwide crises of confidence; for instance, the leakage of the bank rate in 1957.

At the other end of the range are an enormous number of tribunals and inquiries which come under the Tribunals and Inquiries Act 1958, revised in 1992. They come under the supervisory umbrella of the noble and learned Lord, Lord Archer of Sandwell. They cover a wide variety of administrative-type inquiries, ranging from parking adjudication— I am not sure what that is but I am sure that it is important— to the national lottery, which is still to come into operation, and Commissioners of the Inland Revenue. Scores of inquiries come under the supervision or overall guidance of that Council' on Tribunals. I shall not be referring to those, except to say that whatever safeguards apply to one type of inquisition should apply to all.

There is a scale of inquiry which falls in the middle band between those two extremes. That is the band to which I shall refer today. Those inquiries are authorised by various Acts and have their own rules and I shall refer to them. There are also inquiries which are set up without any statutory authority; for example, the Scott Inquiry, which is now taking place and to which I shall not refer.

The common feature in all those inquiries is that they are inquisitional. They have been set up to inquire into allegations of misconduct and they can be very unfair. They are unlike judicial proceedings in courts, which are adversarial. In such judicial proceedings there are opposing parties: plaintiff and defendant, prosecution and accused. Most important, there is the judge who presides, hears both sides and finally gives his verdict.

Inquisitional inquiries, to which I am referring, are chaired by a president, an inspector or whatever he may be. The noble and learned Lord, Lord Denning, when presiding over the Profumo Inquiry, said that he had to act as "detective, inquisitor, advocate and judge". Acting in that variety of roles must give rise to a serious risk of much unfairness.

The Salmon Commission inquired into the 1921 Act and stated: The inquisitional procedure is alien to the concept of justice generally accepted in the United Kingdom". That is a fairly dramatic statement to make about a system that is widely used today. The commission went on to state that if the procedure were to be retained— and it may be necessary "in exceptional circumstances"— certain cardinal principles must be adopted. Although those remarks were directed at inquiries under the 1921 Act, they are equally applicable to any form of inquisitional inquiry. Indeed, the Franks Committee made that clear in its 1958 report.

Some of these inquiries are held in public and some in private. Neither is sub judice. That has serious consequences. If the inquiries are held in public, the media can be most selective on what it reports. Representatives will attend the inquiry all day and there will probably be only one paragraph about it in the daily paper. They will pick out the most newsworthy item and if that happens to be salacious, so much the better for the sales. I can understand the reasons. Not being sub judice enables an inquiry to be badly distorted in the media. At an inquiry held in private, of course, the press will not be present. Its members can predict, estimate and guess what the evidence is or will be and what the outcome will be. The 1966 report of the Salmon Commission stated: The press should exercise extreme caution in reporting proceedings". Perhaps in 1966 such remarks may have had an impact on the press that they do not necessarily have today.

If the inquiry is held in private— and company inquiries are always held in private— no witness hears what other witnesses have said about him, however damning it might be. If the one being criticised is called before his critic gives his evidence, the inspectors do not have the allegations or other evidence to put to the one being criticised at the time he is giving evidence. The inspectors cannot tell him that he has already been criticised because that criticism comes from a witness who comes later. The inspectors can recall a witness, but rarely do that.

Whether an inquiry is held in public or in private, no witness can cross-examine any other witness. If the inquiry is held in private, a witness will not know what has been said. If the inquiry is public, he may hear what has been said, but has no right or power to criticise or to challenge that. A witness can take his legal adviser with him to most inquiries, but that legal adviser is not allowed to give evidence, to address the inquiry, to cross-examine or to question any witness.

In a private inquiry, no witness knows what has been said (apart from in his own evidence) until the report is published. The report may contain something about which a witness, who has not heard it before, will express astonishment when the report is published. A witness might say, "If only the inquiry had asked me about that, I could have told them what happened", but the witness was not asked. He did not even know that the point had been raised during the inquiry and the inspectors had not put it to him — either because they did not consider that it was important or because they had overlooked the fact.

If there is a clear conflict of evidence between two witnesses, the inspectors decide whom to believe. The disbelieved has no opportunity to cross-examine his accuser. He can be branded in a report as a liar and not have the opportunity to cross-examine those who have accused him, or to test their evidence.

One of the six cardinal principles that the Salmon Commission laid down was that in such circumstances a witness should have the opportunity of testing by cross-examination conducted by his own solicitor or counsel any evidence which may affect him". That was directed at the 1921 Act, but must surely apply with no less weight to any inquisition that might expose someone to unfair treatment.

Where inspectors intend to raise a criticism about someone in their final report in a Companies Act inquiry, they are required to give a draft of that report to the man or woman to be criticised and invite them to comment. Those who see that draft then have to try to convince the inspectors that they are wrong. They have to try to do that without any opportunity to see the evidence against them, let alone the opportunity to cross-examine their accusers on it.

Perhaps I may give some brief illustrations of the sort of unfairness that has resulted from this procedure. I refer first to an inquiry under the Companies Act 1985, the report of which made serious criticisms of certain individuals. Those criticisms were based on a complete misunderstanding by the inspectors of the facts— I believe that that is widely accepted. The individuals had no proper opportunity to respond to them. However much one is damned, there is no appeal in such circumstances. The individuals were therefore left with that criticism in the report. It ruined their careers. That is gross unfairness and should not be allowed to happen.

Another case relates to a DTI inquiry into share and option movements which occurred ahead of a takeover bid in 1988. I see from press reports that, despite the media fanfare with which that inquiry was launched, it is still on-going. Nothing has been heard of it since. No doubt a lot of expense is still being incurred. Many people who are involved in that inquiry have already waited for over five years and must be hoping for an outcome. Surely that delay must be unfair to all those involved.

A further example relates to a highly publicised notice in 1991 stating that an official receiver was taking action under the Company Directors Disqualification Act 1986 to disqualify a director from acting as a director. I do not know whether or not that application was justified— nor can anyone else until the proceedings are heard— but I understand that, due to other proceedings that are pending against other people, it is unlikely that the inquiry will be heard until 1996. In the meantime, the individual concerned does not know with what he is likely to be accused and has no opportunity to give an answer to it. It cannot be fair to keep someone under such a cloud for five years.

I now turn to a slightly different category, but again these are examples of the unfairnesses that can result from this type of inquisition. I should make it clear that many such inquiries are conducted most properly and that no unfairness is caused, but when unfairness does occur, it can be very traumatic and very damaging to innocent people. Into this different category of examples come the inquisitorial inquiries, such as those that are carried out by district auditors which condemn individuals who may have to wait a very long time, often incurring considerable expense, before having any opportunity to challenge that inquisition's findings, let alone clear their names.

I have taken a fairly random selection of inquiries that can cause concern and in which unfairness has been caused to individuals who are innocent or who are assumed to be innocent, as we all are unless and until we are proved otherwise.

The purpose of the inquiries is to report on the facts. They should not pass judgment by drawing conclusions from conflicting evidence that is not tested by cross-examination. My purpose in this Motion is to express my concern about "the inquisitorial procedure" which the Royal Commission under Salmon said was: alien to the concept of justice generally accepted in the United Kingdom". My Lords, I beg to move for Papers.

3.37 p.m

Lord Clark of Kempston

My Lords, I am sure that all your Lordships will agree with me that we are most grateful and indebted to my noble friend Lord Boardman for raising a subject that is often swept under the carpet. Noble Lords will recollect that the Government tried to solve some of the problems in the City of London by introducing what is known as the Financial Services Act. When that Act was going through another place, many of us said, "Let us be careful about this because we could over-regulate the City". I think that anybody who has endeavoured to work with the Financial Services Act will agree that the compliance costs, regulations and red tape of that Act have not achieved the result for which the Government wished. One of the fears of many of us in the City is that if the City is over-regulated, other financial centres will benefit because business will go to those centres.

I very much agreed with the points made by my noble friend Lord Boardman when he drew attention to some of the cases which have been shown to be completely unfair. I remind your Lordships of the Blue Arrow case which went on for nearly four years. I am not arguing the merits or demerits of the individuals concerned, but what I do say is that to keep a person under threat for four years is completely barmy and does not accord at all with our interpretation of justice.

There has also been the Levitt inquiry. Many of us were completely astounded at the sentence of community service that was given for an obvious fraud on many members of the general public. There has also been the Barlow Clowes case, which again involved taxpayers' money, lengthy proceedings, etcetera, etcetera— not to mention the Guinness affair, which went on for years and years. In each of those cases individuals were under threat because of the allegations that had been made against them. As my noble friend Lord Boardman said, they did not have an opportunity to refute those allegations. That meant that our system of justice consequently came under close scrutiny and criticism.

We have had the recent case of an individual in the National Audit Office who alleged that there had been certain misdemeanours within Westminster City Council. I do not know whether there have been, but it was completely unfair, in my view, to keep the people alleged to have perpetrated some kind of swindle in suspense. Under threat, one of them committed suicide. There must be something wrong with our legal system — and I remind noble Lords that I have no legal knowledge at all— when in many cases the tribunals, investigations, court cases, trials and the rest of them go on for far too long. With the greatest respect to any of my legal colleagues here, it is a bonanza mainly for the legal profession in many cases.

When I was Chairman of the Back-Bench Finance Committee in another place, I was worried, as many of us were, about the accusations of insider dealings within Lloyd's of London. After I led a delegation to the Lloyd's Council an independent committee was set up under Sir David Walker. I had the honour to be a member of that committee which looked into what was known as the LMX spiral. Many Names in Lloyd's lost a lot of money because of poor underwriting and lack of communication between members' agents and the managing agent. The committee began work in March 1992 and its report came out six months later. I should have thought that that was one way in which we could look at the question of investigations to see whether we could truncate the time it takes to reach a report.

There are too many regulators. Within the City of London there is the Securities and Investments Board, which does a first-class job of work, there is FIMBRA, LAUTRO, the Life Assurance and Unit Trust Regulatory Organisation, and now we shall have the Personal Investment Association, the PIA. All those bodies— I shall not call them quangos— overlap and take our eye off the main objective.

I suggest that when we have allegations or trials under the Companies Acts, or whatever, we must look at the jury system in this country. In many cases the complexity and complicated points in a court case are just not understood by the jury. Jury members just do not have the knowledge to understand them. I should have thought that it was high time that we looked at the proposal to have a court— what we would call it I do not know— of experts in the Companies Acts rather than believe that we can leave an ordinary jury to deal with it. In many cases, I am convinced that the jury are blinded by science.

My main point in supporting my noble friend Lord Boardman is to cut out the unfairness of a threat hanging over an individual about something which he or she has not had the opportunity to refute. We have the Serious Fraud Office, the Crown Prosecution Service and so many other avenues, but we do not seem to pick simply on one to deal with allegations of fraud or whatever it may be.

My noble friend referred to the case where a person was told, or it was alleged, that he was unfit to be a director. I do not know whether he was unfit, but such a person should be able to prove his fitness or otherwise as soon as possible because in many cases he is probably in the meantime being deprived of any livelihood. He cannot stay on any board and consequently there is hardship, and so far as I know he has no recourse to anyone at the end of the day — four or five years later, or whatever it takes— for compensation for loss of earnings.

We spent so long on the Financial Services Bill and there were so many drafts and redrafts that the final Act was nothing like the original Bill. It was revised, I believe, six or seven times before it saw the light of day. I urge my noble and learned friend and the Government to concentrate on how in the case of inquisitions, trials or whatever we can overcome the long delays, even if it means dispensing with the jury system. In my view, it would mean justice for those people who are alleged to have done something but who have not had the opportunity to refute it.

3.46 p.m

Baroness O'Cathain

My Lords, the House should be most grateful to the noble Lord, Lord Boardman, for introducing such an important subject for debate. It is my fervent hope that during the course of this debate the problems can be aired in a constructive manner and that the upshot of our contributions will acknowledge that, whereas we are all of one mind that fraud must be eliminated, must be pursued, we should not lose sight of the fact that Britain is still way out in front in the league table of business ethics and morality in financial and other commercial operations.

If one were to take a snapshot view of some five years' press comment relating to business practice in Britain one would probably come to the conclusion that business practice, and particularly financial practice, left a great deal to be desired. The reality is far removed from that conclusion. In addition, one would probably infer that fraud in the City of London was rampant. Again, not so. I think that it behoves me to remind the House that the daily foreign exchange dealings alone of the City of London amount to over 300 billion dollars — more than the comparable turnover of New York and Tokyo combined.

The reason for such prominence being given to the apparent problem of fraud in the City is simply derived from the fact that, as one of the three great global centres of finance, it is bound to attract the bigger attempted frauds. The sheer volume of banking business going through London and the availability of very liquid markets means that criminals who specialise in this area will target the UK banking system. These are frauds on the City not of the City, and this distinction is important.

The current procedures of statutory inquisitorial tribunals arose from the considerable public dissatisfaction with the system for the investigation and prosecution of serious and complex fraud and from the feeling that the fraudsters were "getting away with it". Following the report of the Fraud Trials Committee in 1986, the Serious Fraud Office was established in 1988. Frankly, just looking at the extent of the responsibilities of the SFO I think that working there must be one of the most onerous jobs in the country.

Be that as it may, it is imperative to have a system in place which can deal with complex fraud and, indeed, the very existence of such a system probably has a deterrent effect on would-be fraudsters. There is no argument about the need for such a system; what can be questioned is whether the methods employed during investigations of fraud are acceptable or, on the other hand, are the systems which are currently in place adequate in the face of premeditated fraud or should we have some form of statutory regulation which would make investigations more clear-cut?

I fear that I am falling into my own trap of conveying the impression that there is a huge problem of fraud. I do not believe that this is so. Just let us cast our minds back 30 years or so: insider dealing was rife— as indeed it still is in many countries. Even some 10 years ago the role of non-executive directors was nothing like as onerous as now; audit committees were the exception rather than the rule that they have now become; very few companies had internal audit departments; the role of external auditors was quite superficial by comparison with the in-depth analytical review of the financial affairs and statements of the company which is, I hope, universally carried out now.

The Companies Act, FIMBRA, IMRO, LAUTRO, SIB, Cadbury have all combined to make all of us involved in business and finance extremely aware of the responsibility 10 dc all in our power to prevent, search out and eliminate fraud. The growing awareness of the role and responsibility of the board has changed corporate governance beyond recognition.

The existing systems in place in companies almost certainly prevent much fraud but, sadly, there will always be people whose sole aim is to defraud. The investigations into fraud must be, of their nature, extremely difficult and fraught with what I call the "probability factor". In a murder case there is a body — or nearly always so; in a fraud case there is often very flimsy evidence. If I pass a cheque to someone over a lunch table, am I perceived as guilty of some fraudulent activity?

However, all fraud has to be investigated— deeply — in order to stamp out crime, improve business ethics and maintain our national and international reputation. In the course of such investigations rough justice is often seen to be the norm. Totally innocent parties can be prejudiced and, despite the maxim that "everyone is innocent until proved guilty", mistakes do happen. Surely, my Lords, we must endeavour to ensure that nobody should make premature judgments on the basis of superficial evidence. Rough justice has no part in our business world— or should not have.

Looking at the whole issue, I suggest four options which could improve the current system. First, it is imperative that the investigatory process should be expedited with real force. As has already been stated, the longer the process takes, the more likely it is that the innocent will be irreparably damaged.

Secondly, like the noble Lord, Lord Clark of Kempston, I believe that there is a very strong argument against trial by jury for cases of complicated fraud. Very few people, however well educated they are, can understand the complexities of most of the cases that come before them. The documents themselves are almost incomprehensible to those who are unused to finance. On the principle of juries always trying to adopt the line of "proof beyond reasonable doubt", I am not surprised that many juries acquit. There must be a case for fraud cases to be handled by judges alone, provided that those judges are fully trained in financial practices and are completely financially and computer-technology literate.

Thirdly, consideration should be given to the introduction of plea bargaining. The director of the Serious Fraud Office had some very interesting comments to make on this issue in a speech he made at the London School of Economics on 10th November 1992. In essence, he made the following points: the avoidance of a contested trial by making a plea of guilty yields enormous benefits in terms of cost, time and manpower; and, if defendants knew in advance what the sentence would be they would weigh up the cost to them of going ahead with a trial and hoping to be found not guilty against the cost of anxiety, monetary outlay and many other factors. That could result in the defendants being more inclined to plead. Mr. Staple also made the point that he believes it is possible to introduce a system encouraging guilty defendants to plead, while at the same time protecting them from improper pressure to do so. Surely that should be encouraged. I do commend Mr Staple's speech to your Lordships. It can be obtained from the SFO.

I turn now to my fourth option. Every possible attempt should be made to ensure that there is no trial by the press during the course of investigations of fraud. Indeed, the noble Lord, Lord Boardman, referred to that fact. Why is it that during the period while a suspect for a murder is being investigated the press obey the sub judice rules, yet we have the appalling spectacle of hoards of baying pressmen being alerted that an arrest is about to be made of a suspect in a fraud case? Trial by jury is one of the principles of our judicial system— to my knowledge, trial by the media is not.

By its very nature fraud is obscure and difficult. By its very nature it is exceedingly complex. What concerns me greatly is that, because it is so complex, it is imperative that we realise that the skills and knowledge base of all the members of investigatory teams cannot possibly be of the highest order. That is a fact; it is just not possible to ensure that every single person engaged in such a task has all the background experience which will equip him or her with the ability to make fair and correct judgments and to arrive at the right conclusions.

As a mere novice in the business of understanding computer science, I can still see how computers can, and indeed do, increase the risk of fraud. Computers and conspiracy are an explosive combination which require intense vigilance in all companies and institutions and, indeed, penetrating investigation when vigilance has failed. If we cannot get that right— and, by "right", I include making sure that the innocent are not irreparably damaged— we will be forced ultimately to go down the road of statutory regulation. That would be a sad development, a development that might not yield the required results as there is no assurance that tighter regulation would reduce the level of attempted fraud as fraudsters are not generally part of the authorised network.

The "open" system of regulation has enormously benefited the development of the City as the top international financial centre. The existence of our open system has ensured, for example, that foreign banks have felt welcome here. They have come in their hundreds. At the last count there were 537 foreign banks from over 70 different countries in the City of London. We should bear in mind that there is no evidence that a single bank has left London as a result of the too-well publicised occurrences of fraud. To the contrary, every indication supports the view that London remains attractive because of its openness.

As I implied at the beginning of my speech, in a debate like this there is a danger that we will concentrate too much on the negative aspects of our business and financial activity. As in all areas of human activity and endeavour, mistakes do happen— but so do successes, many successes. We have unsung heroes in the battle against crime, among them the City of London police. I am sure that noble Lords will recall the story of the bond which was stolen in broad daylight in a street in the City not too long ago. It involved over 200 million dollars, nearly all of which has been recovered in the course of arrests and trials in seven countries around the world. It is quite a success story, but not too much media publicity has been given to that particular success.

In conclusion, I feel that the current strategy in preventing and dealing with fraud is probably right. The combination of "watch dog" agencies with those strange acronyms (FIMBRA, IMRO, LAUTRO and SIB), together with the vigilance of the DTI and Customs and Excise, ensure that as much as is probably humanly possible— or, acceptable in a democracy— is done to prevent fraud. Perhaps it is the tactics that need looking at again— the tactics employed in, to quote the wording of today's debate, the current procedures of statutory inquisitorial tribunals and inquiries investigating allegations of serious fraud and other misconduct".

3.56 p.m

Lord Selsdon

My Lords, it is sad that such a debate should be necessary. I have asked myself why. I stand four square behind my noble friend Lord Boardman on the points that he made. However, I wonder why we should reach a stage now where we are to some extent querying the integrity of our own system. When there is any doubt, it seems as though a Minister or an official runs for cover and immediately appoints someone to head or run an inquiry— an inquiry which is usually, and more often than not, unfair and unjust for a high proportion of people.

I wonder why that has happened. Drawing on my limited experience, I believe that such changes have probably taken place only over the past 20 years. I do not cast doubts upon the integrity of those in the Department of Trade and Industry, the Treasury or other bodies which seek to control the system, but I wonder whether the move towards the centre is correct. I believe that it was Samuel Johnson who said: Integrity without knowledge is weak and useless". When I worked in such fields in the City of London and in other places we controlled ourselves. We were controlled by our bosses. The name of the house was all important. You could not deal in shares in any way other than through the bank itself which held the shares in your name. You had no control over financial matters. Your partners or directors had a corporate and collective responsibility. You were a known Name and you knew with whom you did business and with whom you did not.

Over the passage of time we have seen many comments in the newspapers about dishonesty, lack of integrity and fraud across the board. But those of us who have worked in the financial world— and I must not mention any names— were often told, "We do not lunch with them"; "We do not meet with them"; "We do not join syndicates with them"; or, "We do not work with their clients". Often when we heard such phrases, within a matter of six months or a year we would read a headline in a newspaper that someone had run off.

Why does such a problem occur? More often than not I believe that the frauds— if that is what they are called — do not begin intentionally. People set up a business in a genuine effort to try to make money, but when things go wrong and they see their shares collapse they run for cover and their standards drop. At such times it should surely be the responsibility of the board of directors or the shareholders themselves to exercise influence.

I was interested to note that there are many speakers in this debate, but not so many months ago we had a debate on corporate governance when I believe only three or four people spoke. There is a need for guidelines, and we know what those guidelines are. The noble Baroness has referred to audit committees and remuneration committees. The controls are fairly obvious and can be implemented by people and organisations themselves.

I believe that the move towards the centre in terms of control is wrong and it is also more costly. When I first went to work in the financial world I used to shake hands with people. The other day I was present at a meeting where there were, I believe,15 lawyers and no client. I tried to shake hands, but one man said to me, "You cannot shake hands on that. It must be a legal agreement". In the early days one gave one's word, and one's word, as we have heard before, was one's bond. A similar situation arose in the case of a horse deal in the East End: one spat on and then slapped one's hand and that was legally binding. The punishment for breaking the rules entered into with that gesture was death. Today one can complete a commodity deal on one sheet of paper but it needs 40 to complete a loan. The banks regard everyone who borrows money with intense suspicion, as if they were about to run off with the funds. Something has gone wrong because more and more paper covered in small and large print is produced; and some of us find as we get older that we can no longer read even the large print.

I worry about these trends. However, they are not just symptomatic of the financial world, which is what we are discussing today, where people conclude transactions for greed and gain and not necessarily for glory. In the area of public life generally we have had the Scott inquiry and examples of people who have genuinely sought to do things which they think are in the national interest. Perhaps we should remind them that, Patriotism is the last refuge of a scoundrel". Why is it that we are regarded with suspicion in whatever we do? For a period of time I chaired a government committee on Middle East trade. I dealt with countries which had problems of terrorism and all kinds of other problems. I dealt with Syria, Libya, Iran and with countries that were often under sanctions. I believe that Britain was the first country to impose sanctions on another country.

It is interesting to note that Britain now probably has the highest standards of all in trying to ensure that sanctions imposed by the United Nations or other bodies are adhered to. Perhaps noble Lords are aware that other countries allow their citizens to do anything which they believe to be right in the national interest provided they have consulted on the matter beforehand. Here, if one wishes to communicate with certain countries which might prove to be useful trading partners once one has persuaded them to conform with the regulations involved with sanctions, one has to obtain a permit to communicate with them. That applies of course even to parliamentarians. Parliamentarians need to approach the Department of Trade and Industry, make an application on paper that is almost of banknote quality and state the nature of one's discussions with the country concerned. It is as if the Government are saying, "We know what is best for our citizens", when more often than not it is the citizens who now best what is good for the Government.

It has been said that, Knowledge without. t integrity is dangerous and dreadful". The bringing together of knowledge and integrity is a difficult feat. I believe that there are many of us who still think that one does business with someone or works with someone because one likes and trusts that person and not so much because of the organisation in which that person works. If there are to be controls in this area, I believe they should be as decentralised as possible and that firm guidelines should be laid down. Those noble Lords who may have had friends who have had to appear before public inquiries of one kind or another will know that, however innocent a person may be— I have taken part in such an inquiry myself— he will feel his heart start to pound and wonder whether he has done anything wrong. One feels that there is no sense of justice in such an inquiry and that one is talking to people who know nothing about the subject which they are investigating. One feels that they are learning on the job and are changing their minds as they go along, having reached a conclusion at the beginning.

I worry about these inquiries. I am not so worried about the cost of them, as they keep an enormous number of people employed, but I worry about the time that they take up. Often one is asked to appear before one's peers in an organisation and given a rocket for having done something wrong. One accepts the rebuke, even if one knows it is unjust, and that is the end of it. The rebuke is short and sharp, and if it turns out later to have been unjust, one is told, "Bad luck. That is just part of the system and it will help you to grow up".

I have not said anything terribly constructive, but I feel that somehow officialdom has sought to impose itself upon people in a way that has reduced their integrity. It is sufficient for someone to say that an action is within the law; he no longer makes a subjective judgment about the morality of what is involved. I still believe that a handshake ought to be legally binding. However, I must confess that things go wrong all the time and one's integrity is questioned. I end with a quotation from Kipling: If you can trust yourself when all men doubt you, But make allowance for their doubting too

4.5 p.m

Baroness Miller of Hendon

My Lords, I am most grateful to my noble friend Lord Boardman for initiating this debate. I wish to draw your Lordships' attention to a completely different form of inquisitorial inquiry into other misconduct, or rather alleged misconduct, where: the procedure used often seems to be exceptionally hard. I refer to what are sometimes called back duty inquiries, where a taxpayer, or frequently a non-taxpayer, comes to the attention of the Inland Revenue. These begin with a letter to the taxpayer demanding that he re-affirms the declarations he has already made in his tax returns, and asking him to give unrestricted access to his private records. There is also a demand for an interview, where the inspector reads something called the Hansard extract which is a statement made in the other place by the then Chancellor of the Exchequer on 5th October 1944. This statement warns the person of the penalties for non-disclosure of all income— up to three times the tax involved as well as penal interest. There is the threat of possible criminal proceedings; but then it also suggests that those penalties might be mitigated in return for what is called full co-operation.

In other words, exercise your right of silence at your extreme peril. It is in the interpretation of the word "co-operation" that problems arise. In many cases— not all, of course— it takes a great amount of determined pressure before the inspector is prepared to indicate in advance the nature of the questions which he wants answered at the interview or even to tell the taxpayer what he is inquiring into. Let me add that there are in fact few complaints made by individuals about the way the Inland Revenue has conducted their hack-duty inquiry. Perhaps that means those individuals are just pleased to be out of the clutches of the Inland Revenue; but I think it probably means that on the whole inquiries are conducted in a firm but reasonable way, and in accordance with the Inland Revenue's long-standing procedures. But it is those procedures which I believe need to be considered. Can we still allow the Inland Revenue to operate under methods of interrogation laid down some 50 years ago?

The Court of Criminal Appeal has not hesitated to throw out cases where it felt that the accused had been subjected to oppressive questioning or had confessed under the fear of threats or because of promises of favourable treatment. Is it not right that every sort of statutory inquisitorial tribunal and inquiry should also conduct itself in a way that conforms to the current high standards required of the police under the Police and Criminal Evidence Act? Should it not also have to conform to rules of natural justice— rules that include the right of a person summoned to appear before such an investigation to be told if he or she is accused or suspected of any offence or of any civil wrong doing? Such a person should have the right to be told from the very outset exactly what those charges are or what they may be. He or she should have the right to be told the nature of any evidence against him or her. He should have the right to confront and cross-examine any witnesses who have made allegations about him; and he should have the right to have the time to prepare and present, with legal assistance if necessary, a defence before any provisional finding of guilt is made by the very same person who has to make the final finding as well.

Those being investigated for so-called white collar crimes, for tax evasion or for abuses of their public duties should certainly not be given any special privileges. On the other hand, I hope that your Lordships agree that they should not be given less protection than, for example, an alleged mugger.

4.11 p.m

Lord Moyne

My Lords, I too would like to thank my noble friend Lord Boardman for introducing this timely debate. I hope that the authorities will pay attention to it.

I very much enjoyed the speech of my noble friend Lord Selsdon. I too remember the time in the City when one either did or did not lunch with somebody. I remember an over-enthusiastic and junior director of the place where I worked introducing to the lunch table somebody whom the chairman did not much like. Afterwards the chairman, in a rage, tore the page with his signature on it from the lunch book. The issue went that far. It was not a bad principle. On the other hand, did we control ourselves that well?

There was a Guinness scandal in 1886 when the merchant bank which first brought our shares to the market underpriced them and gave them to its friends, so it is alleged. I am looking into that myself for certain reasons, and it appears that that happened.

We dressed matters up in the old days, but we were not always whiter than white. I have never opposed the idea of some extra regulation, especially now that business is becoming so much more international and we are so much more tied to other countries, where standards are perhaps not as high as ours. There is, I am afraid, a Gresham's law in business standards: the lower tends to replace the higher unless one is very careful.

I would put a ring around the word "inquisitorial" in this Motion to get to the heart of the subject, because in effect we are talking about the introduction, in a clumsy form, of the inquisitorial system of justice which applies on the Continent. The Board of Trade or DTI inquiry is like the examining magistrate in France. The difference is that it is done in the wrong way in public in that the DTI goes in and the media report the fact. It is also done the wrong way in private in that there is no possibility of reply. The single most important contradiction is that the inquiry can compel the giving of evidence and then, if the witness who is so compelled is subsequently prosecuted, in practice if not in theory his evidence is given to the prosecution in a trial, totally vitiating the right to silence. I believe that that issue should be considered much more carefully.

4.13 p.m

Lord Spens

My Lords, it gives me great pleasure to follow the noble Lord, Lord Moyne. I seem to have spent my life for the past eight years following Guinness.

I speak with a certain amount of experience of these tribunals. I have weathered seven in the past 10 or 12 years. It is only recently that it has occurred to me that they may not be all that they should be. The three tribunals with which I have been involved recently concerned Milbury Homes, House of Fraser and Guinness. The Guinness tribunal is still going on some eight years after the events being investigated.

As a merchant banker, one runs an occupational risk of appearing before such tribunals. It seems to me that the first port of call is the adviser, who always has to take some of the blame. I have never been able to understand why advisers should be thought capable of running a company. I have only ever been slightly criticised. That was for not putting someone on the board of a company, even though as an adviser one has no duty or powers to put someone on a board. That approach by the inspectors was extraordinary.

I was interested in the comments of the noble Lord, Lord Howe, when he faced the Scott Inquiry. He clearly found it an uncomfortable experience. He was not faced with the problem, which was raised by the noble Lord, Lord Moyne, of the use of evidence against him, because people in his position have immunity.

I wish to focus on Section 434(5) of the Companies Act 1985, which follows the complaint of the noble Lord, Lord Moyne. It states: An answer given by a person to a question put to him … may be used in evidence against him". In 1971 Lord Justice Sachs, in the Pergamon Press case (which I believe is the test case in the whole issue of inquisitorial trials), said: The Inspectors' function is in essence to conduct an investigation designed to discover whether there are facts which may result in others taking action; it is no part of their function to take a decision as to whether action be taken and a fortiori it is not for them finally to determine such issues as may emerge if some action is taken eventually". That is such an important statement that it was included in the handbook which is handed to inspectors when they start an inspection.

I believe that until 1987 everyone was reasonably happy with inspectors, although perhaps the flowery comments of some of their subjective judgments caused problems; otherwise they were reasonably acceptable. In January 1987 a political decision was taken to change the procedures. In the Guinness tribunal the inspectors were told to investigate offences and the police were deliberately kept out of the investigation for four months. The effect of keeping the police out of the investigation was to obviate any problems arising in connection with the Police and Criminal Evidence Act, which was mentioned by the noble Baroness, Lady Miller. Indeed, that was so important to the Guinness trials that from the very first day of the preliminary hearings the prosecuting counsel, John Chadwick, QC, said: It will come as n surprise to your Lordship or to anybody else when I say that if Mr. Parnes' transcripts of evidence were not admissible the prosecution would have to think seriously whether to proceed against him at all. We know that that decision was taken. We know the dates of the meetings between Ministers, DTI officials, Home Office officials and the Crown Prosecution Service. However, we ran into the brick wall (at least in those days it was a brick wall) of the public interest immunity certificate which was issued to prevent us from obtaining the detail of those meetings. That was long before Mr. Justice Smedley and Matrix-Churchill. The trial judge decided that he had no power to go behind the certificate. He then ruled that the Police and Criminal Evidence Act did not apply to businessmen of intelligence and sophistication and that that had been decreed by Parliament. That ruling was supported in the Appeal Court and this House declined to hear the appeal.

The matter has not ended there. Mr. Ernest Saunders has taken his case to the European Court and has won the first round in that the court has said that that was a prima facie and major breach of Article 6 of the European Convention on Human Rights. It has required the Government to reach a friendly settlement with Mr. Saunders, failing which the court will rule formally later this year. The mind boggles at what sort of friendly settlement can be reached, with a man one has put inside for five years on the basis of rigged evidence. Therefore, I assume that we shall find ourselves in front of the European Court and will have to await its ruling.

It is a shame that four men have received long gaol sentences and huge fines totalling some £ 11 million on the basis of an apparently obscure route of using against them in a criminal trial evidence obtained without the protection of PACE. On any basis that has to be an abuse of the system. I think someone has described it as a sort of "noble cause corruption".

However, there is another problem with these tribunals. At the same time as the Guinness tribunal started, another secret tribunal was created. This was a licensed dealers' tribunal, which examined under the chairmanship of a Member of this House, with two lay assistants (two very respected City people appointed by the DTI and the Treasury), one of the transactions over which I was at the time facing two charges. This tribunal in 1988 apparently ruled that there had been no false market and no breach of Section 151. The judgment of that tribunal and the 2,000 pages of evidence which went with it were concealed from the inspectors on the main Guinness inquiry; they were concealed from the Bank of England and they were concealed from the defence until the 54th day of the trial in which I was involved.

The judge ruled that, luckily, none of the witnesses had yet been called, and so I had not been hurt. But what he had missed and what he did not draw attention to was the fact that in fraud trials under the 1987 Criminal Justice Act, Section 6, there is a clause which allows one to make a "no-case-to-answer". It is quite clear that had that evidence been made available to the defence, that application would have been made and six years and many hundreds of thousands of pounds' worth of costs would not have been incurred— costs which, incidentally, I have not yet been repaid.

It seems to me that these two tribunal systems were very different in their categories. One was a Roskill-type tribunal— the latter one— which found effectively in a judgment against the Government argument that there had been a false market and there had been breaches of Section 151. That evidence was kept from all those people for all those years. Unless we have some system which allows cross-transmission of evidence as regards tribunals, these injustices will go on.

4.23 p.m

Lord Lyell

My Lords, I too am grateful to my noble friend Lord Boardman for raising this subject this afternoon. Unlike many of your Lordships who have spoken already, it is many years since I worked— if that is the operative verb— in what is known as the City, or indeed worked as a professional in any way; and so much of what I have to say and what I have learnt has been within the portals of your Lordships' House, and indeed within this Chamber.

When I looked at the Motion we are discussing, I thought it might be reasonable to take a fairly light-hearted view. I hope that my noble friend and those of your Lordships who have spoken before me will accept my apologies if I should tread on any toes, be it ever so lightly. I hope that your Lordships will accept that the thrust of my comments, if my noble friend will forgive me, are inquisitorial and I hope may throw some light upon another view which has not yet found its way into the debate this afternoon.

The thought of inquisitorial tribunals and inquiries, indeed, sets my imagination rolling on pictures of my noble and learned friend Lord Rodger with hot tongs, electrodes or the rack. That might be a light-hearted thought, yet which of us might not take that view if we were to be suddenly charged in the course of business with an unending list of offences? Much of this was touched on by my noble friend Lord Selsdon when he said, "Our word is our bond". The thrust of this afternoon's debate is that we have moved away from that.

My noble friend Lord Boardman also refers in his Motion to serious fraud. I am sure your Lordships will know what he is aiming at. Any of your Lordships who have had cause to deal with the activities, the figures and, indeed, the practices of the common agricultural policy, Euro-finances, green pounds and other activities on a Euro-scale will be astonished at the serious fraud. Indeed, my first thought when considering the subject of fraud— though it might not enter your Lordships' minds, let alone that of my noble friend— is, "Is that all?". I am astonished at their moderation, and I cannot help thinking how easy it is to perpetrate these activities.

However, it is the third element in my noble friend's Motion that I should like to touch on— "other misconduct". I shall try to narrow my remarks to the reports of the Department of Trade and Industry and the inspectors who are appointed. Your Lordships may not be surprised to hear that many of these reports are filling my shelves in Scotland and in London. Indeed, my noble friend Lord Clanwilliam nearly did himself a mischief attempting to lift the report on the House of Fraser affair, which is a mere 752 pages. It is quite short compared with some other reports that have been presented.

The main thread running through this aspect of the DTI report concerns an inquiry involving what are termed in Section 431 onwards of the 1985 Companies Act "relevant persons", which usually turn out to be a Queen's Counsel and a chartered accountant. These inspectors are appointed under the 1985 Act and previous Companies Acts by the head of the Department of Trade and Industry. Somewhere, somehow, under the terms of this Act somebody has to investigate all the facts and figures and perhaps come up with conclusions.

Regarding the report on the House of Fraser affair, when I put my name down to speak in your Lordships' House in a debate on 28th March 1990, kilos of paper appeared and I received several representations, including one from some of the interested parties that they would be obliged if I would read their side of things. Your Lordships will be aware that I am quite capable— at least I hope I am— of making up my own mind, such as it is.

However, as regards the main theme of this narrow aspect of the inspector's inquiry and report, someone, somewhere must carry out exhaustive, diligent and professional inquiries to establish facts. When all this is completed, then perhaps a report should be presented. Your Lordships have already heard— and doubtless we shall hear more— about how this should be publicised. I recall several tales of when these reports have appeared — indeed, my noble friend Lord Clark quoted one particular aspect, I think it was in 1968— and perhaps the remarks might have been a little unfair. But of course hindsight is valuable and the words used by the inspectors were quite mild when certain facts were subsequently made clear.

I wonder whether the current system covered by the Motion of my noble friend Lord Boardman requires improvement. So far as the Serious Fraud Office is concerned, one thread has run through the debate so far: the length and detail of the inquiries. I look forward to hearing something on that from my noble and learned friend when he comes to wind up. We may also hear more of that in future.

I believe that the system is changing, as has been touched on by my noble friends Lord Selsdon and Lord Moyne. Systems within commerce and finance are turning more and more to self-regulation. The front page of today's Financial Times has a major headline: Taskforce set up to cover abuse in the equity market". This has been set up not, thank goodness, by the Department of Trade and Industry, let alone by my right honourable friend the Secretary of State, but by the Securities and Investments Board. Perhaps we might agree that professionals who understand how business is done in the City of London might be the best judges of how to deal with any prospective misconduct, abuses or fraud.

The point was made fairly forcefully by the noble Baroness, Lady O'Cathain, that, if there are problems within the City of London, the rest of the world seems to think that they are not sufficiently serious to be worse than anywhere else in the world. Indeed, the standards in the City of London are of the highest. As a good Scottish accountant, I believe that the figures referred to by the noble Baroness prove that the City of London is pre-eminent. We hope that it will remain so.

I refer briefly to the House of Fraser report and to the debate in your Lordships' House. It has been mentioned that all the offences mentioned in that report were part of a fast moving situation and thus some form of monitoring or control would be required. I believe that the Securities and Investments Board is the best body to undertake that. Perhaps I could ask your Lordships to consider one aspect. I hope that my noble friend who opened the debate will agree with my point. I refer to the position of the auditors. They are appointed by the shareholders.

Where there are problems— pray God that it does not come to a dispute between the auditors and the directors — we should take on board these points. First, under the Companies Act the auditors have the right to be heard and represented at the annual general meeting. Is that enough? Secondly, noble Lords will be aware that I am something of a sportsman. My noble friend Lord Selsdon might have been to the part of the world to which I shall refer. American football, a rough, violent and detailed game, has not one but, so far as I am aware, five judges, line judges and umpires. When there is a problem, one sees one of those gentleman throw down on the field a yellow duster. When play ceases, those gentlemen gather together and the situation is resolved there and then. Could not such a system be used in a dispute between auditors and directors? With regard to many of the enormous Department of Trade and Industry inquiries and some of the other matters about which we shall hear, a change of auditors might be the first sign to my noble friend Lord Boardman and any other financial observers of a problem.

I conclude by declaring an interest. I do not refer to the colourful activities mentioned previously. My noble and learned friend Lord Rodger of Earlsferry will understand that I refer to one specific organisation in Queen Street, Edinburgh. I do not refer to the Faculty of Advocates or the Law Society of Scotland, to which I owe my interest and curiosity in and training on the subject. I believe that the benefits from that organisation will bring the evils that have been referred to today to a satisfactory conclusion.

4.32 p.m

The Earl of Harrowby

Lords, I have waited five years to see such a Motion appear on the Order Paper. I have first-hand knowledge of one specific case. I should like to explain to noble Lords the consequences which can arise.

I am not a lawyer. I shall not dissect the legal niceties. I shall not speak about the rights and wrongs of the specific inquiry to which I refer, except to note that there were no convictions after appeal and it cost the public and private sectors tens of millions of pounds. I intervene to express my shame that natural justice in my country can be as abused as it was in that case.

I shall speak about that specific case. Three men were criticised for not having their finger on the pulse. Since the end of the war, I have been connected with large, medium, small and very small firms in commerce and industry. Never have I met three men who formed a better and more impressive top management team. The inspectors criticised those men. The criticism was entirely idiosyncratic. The two inspectors just did not realise that in a firm with 100,000 employees tens of thousands of pulses, not just two, have to be tested and one has to delegate. In just the same way, Ministers are responsible for the actions of their civil servants. There was a complete misunderstanding in that case.

The outcome of the case is relevant. Three first-rate senior executives were hounded into resignation. A Minister may resign, but he does not lose his reputation because everyone knows that he is taking the blame. Everyone remembers the case of Sir Thomas Dugdale. That situation does not arise in an inquiry when an individual is criticised. The individuals to whom I refer were hounded by the national press which gave no relief. I have little regard for the national press. I do not include the local press or indeed other forms of the media with my condemnation. However, in this instance, and generally, the national press were spurred on by the inquisitorial ethos in much of the legislation about which we speak, of which the DTI is probably the main proponent.

Lastly, those individuals were undefended by the legal profession both in the specific case to which I refer and in general. The legal profession accepted that inquisitorial possibility in the first place. I regret that no noble and learned Law Lords are present to participate in the debate. So often one has heard them speaking in this Chamber defending the rights of the accused. It would have been interesting at least to hear their comment on the Motion moved by my noble friend.

I was brought up with my father's dictum that there is no such thing as fairness, and that one suffers if one assumes that there I s. That may be so, but it does not relieve the remainder of us of the obligation to resist unfairness when we find it. In such cases, unfairness inevitably occurs. Reference has already been made to Dr. Morrow's suicide note. There is the Clothier report. What will happen from the Scott Inquiry?

I had a label on me of "time expired". My retirement from the connection of which I speak took place before the inquiry proceeded. I regretted that bitterly; I would have resigned along with the three individuals if I had been in a position to do so. My heart went out to my ex-colleagues who had to make the difficult decision whether to accept those resignations in the light of the need to balance the unfairness on the one side and the interests of the organisation on the other.

Inquisition is one thing: it is an undesirable concept. An inquiry is quite another matter. An inquiry, as we know it, is a request by the Secretary of State for advice on whether he should refer a specific case to the DPP. Under no— I repeat, no— circumstances should such a report be published. It is personal to him, and it was so designed. If the full glare of publicity is required for any reason, then the format of that inquiry must be judicial so that individuals are protected within the law.

No doubt my noble friend the mover of this Motion will follow the usual procedure and withdraw it. In my ignorance of parliamentary procedure, I would not have done so. I would have demanded the necessary change in legislation or, I suspect, in ministerial habits and procedures. One thing is clear. Destroying men's lives, some of them good men, must stop.

4.40 p.m

Lord Morris

My Lords, like all other speakers, I am most grateful to my noble friend Lord Boardman for his most timely tabling of this very important Motion. My only regret is that it is a timed debate. The subject is very wide indeed. At the outset I should like to assure my noble friend Lord Harrowby that he should have no feeling of disappointment that, unhappily, no Law Lords are taking part in the debate. I say that in the certain knowledge that the debate will be wound up by three of the most distinguished lawyers who have served this country. I refer of course to the noble Lords, Lord Lester and Lord Williams, and to my noble and learned friend Lord Rodger of Earlsferry. I beseech him to stay, for he is in for a treat. Of that I am certain.

My major reason for intervening in this debate is familial. Even before I came to this House I became particularly interested in a Royal Commission which happened to be chaired by my noble and learned and well beloved relative, Lord Salmon. It was a very interesting Royal Commission in a number of regards. First, it broke a world record for Royal Commissions. It was formed in February 1966, and reported in November 1966. To my certain knowledge no Royal Commission has ever reported with such expedition.

The list of members of that Royal Commission and all those who gave evidence to it is like the most elegant, sparkling necklace, including as it does names of such high repute and quality. That quality is mirrored in the report itself.

My noble friend Lord Boardman is absolutely right. This debate is certainly not on that Royal Commission report. However, if the principles and major recommendations of the report had been borne in mind when Parliament gave the powers to Ministers of State in various departments to set up tribunals and inquiries, those appalling injustices could not have happened.

That was a point suggested by my noble friend Lord Boardman, and he is absolutely right. Let us take just six short recommendations (which are sub-recommendations of the third recommendation). On those alone and nothing else, if those fundamental principles were brought to bear, there would be no problem.

The background to those principles is very interesting. It is stated in the first sentence before they are listed in the report. I beseech noble Lords to listen to the language: The following cardinal principles … should be observed to minimise the risk of personal hurt hurt", my Lords, and injustice to any person involved in the inquiries". I stress that word "hurt". We are not talking about injustice. We are talking only about hurt. The reason that those cardinal principles were adumbrated in the report is that the commission recognised full well that, where there is a conflict between the public and private interest, if one individual is harmed in the name of the interests of the state, then an injustice is very likely to come about. The procedures for avoiding that injustice have been known over the centuries. They are adumbrated in the procedural recommendations, which are as follows: Before any person who is involved in an inquiry is called as a witness, he should be informed in advance of allegations against him and the substance of the evidence in support of them". If that alone had happened in the case of the terrible experience of the noble Lord, Lord Spens, he could never have experienced the appalling suffering and the terrible expense that he went through.

The recommendation also states that, He [the witness] should have adequate opportunity of preparing his case and of being assisted by legal advisers … His legal expenses should normally be met out of public funds … He should have the opportunity of being examined by his own solicitor or counsel and of stating his case in public at the inquiry … Any material witnesses he wishes called at the inquiry should, if reasonably practicable, be heard … He should have the opportunity of testing by cross-examination conducted by his own solicitor or counsel any evidence which may affect him". Those procedures follow the procedures in a court of law. They have been worked out over centuries. Only if those rules of procedure are adhered to can there be any hope of individuals not being harmed by tribunals of inquiry.

I do not like the term "inquisitorial". It is tendentious. But "inquisitorial" refers to nothing other than a tribunal of inquiry. I must disagree with my noble friend Lord Clark of Kempston when he suggested that the presence of a jury has a deleterious effect in terms of time on an action in fraud. I am convinced that the presence of the jury is absolutely essential in cases of fraud. Undoubtedly, the length of time that fraud trials take is directly the result of incompetent prosecution and weak judges. There is no other reason for it. I close by again thanking my noble friend Lord Boardman for giving us the opportunity of attending this debate.

4.48 p.m

Lord Lester of Herne Hill

My Lords, the whole House is extremely grateful to the noble Lord, Lord Boardman, for this wide-ranging debate on matters of real public importance. I begin by declaring a professional interest in the subject matter. I am counsel for the Fayed brothers, whose case will come before the European Court of Human Rights next month. But in what I am about to say, I speak for myself. I express a long held view— one that was expressed by many noble Lords— that the DTI inspection procedures are unfair and urgently in need of law reform.

I should, first, like to explain why my views differ from those that were expressed by two of your Lordships. The noble Lord, Lord Selsdon, seemed at one point in his speech almost to doubt the need for effective public measures to tackle and regulate serious fraud as though it were not a serious problem. My own view is that serious fraud has become a serious problem and that, on the contrary, more effective measures on the lines of the United States Securities and Exchange Commission are needed, but that the procedures accompanying them must be fair.

The noble Baroness, Lady O'Cathain, seemed to think that one of the great menaces in this area at the moment was of trial by the media. Again, I disagree. I believe that the Contempt of Court Act 1981 strikes a fair balance between the crucial needs of the right to fair trial and the equally important need for open justice and freedom of public information and debate.

However, having explained the issues on which I differ, I join with almost every other Member of your Lordships' House in explaining why I believe the current procedures to be unsatisfactory and unfair. I hope that I summarise all the points that have been made so far, and one or two of my own, by concentrating on the unsatisfactory features of the system.

Under the Companies Act, the Government are allowed to publish an official report of an investigation, which is highly condemnatory of an individual and effectively finds him guilty of serious criminal offences, despite the presumption of innocence, which is the golden thread of our legal system, and despite the fact that the individual stands condemned not by a court of law but by government appointed inspectors. The inspectors' condemnatory report is admissible in evidence in any legal proceedings and can also be used in proceedings to disqualify him as a company director.

The report may be made and published on the basis of a process which has each of the following eight features present. First, it need not respect the presumption of innocence. Secondly, the process is conducted in secret by the inspectors with no safeguard of open justice. Thirdly, it does not require the inspectors to follow any prescribed procedures, but leaves them free to conduct their investigations in any way that they consider appropriate. Fourthly, it does not require the inspectors to inform the individuals under investigation about the identity of witnesses against them. Fifthly, it does not entitle those under investigation to confront or cross-examine witnesses or even have access to the file containing the evidence against them. Sixthly, it entitles inspectors to reply upon evidence that would be inadmissible in a court of law and to prepare a report on the basis of evidence of that kind. Seventhly, it vests in the Secretary of State a sweepingly broad discretion to publish the inspectors' findings to the whole world with massive publicity, even though the findings are likely or certain to destroy the reputation of those under investigation. Eighthly, despite the severe damage to personal and commercial reputation, the process does not allow the condemned individual any right of appeal or indeed any effective access to a court of law at all to challenge the findings or to attempt to recover his reputation.

I should explain to non-lawyers that that last aspect arises because the Secretary of State and his inspectors enjoy privilege from libel proceedings and also because English judicial review does not provide an effective remedy for an excessive but lawful exercise of the inspectors' draconian public powers. Indeed, English judicial review does not provide an effective remedy regarding the substance of the inspectors' factual findings, unless it can be shown that the inspectors have taken leave of their senses— a kind of judicial certificate of official insanity on the part of the inspectors.

Like Ministers, our courts have given very wide latitude to inspectors to regulate their own procedures. For many years several independent and authoritative bodies have powerfully criticised the unfair system of publication of inspectors' reports for lack of effective safeguards for individuals against the misuse of public powers. Perhaps I may mention just one or two instances. In 1980, the Law Reform Committee of the Senate of the Inns of Court of England and Wales was strongly critical, referring to the fact that some inspectors had been: unable to resist passing judgments which they are not really well qualified to make". It referred to the fact that no confrontation or cross-examination was allowed and said that the method of inquiry was "inherently unfair" and carried a high risk of being unfair And it explained why. I agree with that committee's proposed reforms, which call for fundamental changes in the machinery for the supervision and control of companies, including the creation of an SEC type of commission. In preparing for this debate, I was interested to discover that in the United States there are much more effective safeguards for the accused than exist in this country.

Other critics were the Bank of England and the Securities and Investment Board, which are both specialist and experienced regulatory bodies. They informed the Select Committee of the other place a couple of years ago that in their view inspectors should establish facts rather than make judgments. They pointed out that one advantage would be that published reports: would not lambast individuals without any apparent remedy". The noble Lord, Lord Alexander of Weedon, voiced similar, well founded concerns. In a letter published in The Times in September 1974— almost 20 years ago — Lord Fletcher, a senior solicitor and former Deputy Speaker of the other place, wrote: The procedure is lot merely an unsatisfactory method of ascertaining truth It lends itself to the publication of reports criticising and reflecting adversely on the conduct and reputation of individuals … These reports are particularly injurious because they are promulgated by the government and assumed to be the result of a judicial or semi-judicial investigation". Surely the time is over-ripe for action by the Government to remove a source of real injustice. The very important aim of uncovering and prosecuting commercial fraud and other criminal misconduct does not justify the use of unfair and excessive means by government appointed inspectors. To be a fair system the inquisitorial system must fully respect the presumption of innocence and the rule of law. In my view, it fails to do so and there is a pressing need for reform.

Lord Selsdon

My Lords, before the noble Lord sits down, I ask him to recognise that of course I accept his perhaps rather unfair rebuke. I was trying to point out not that there should be no laws, but that laws should be firm. I feel that it is better to sort things out near the root of the problem rather than throw money and lawyers at it after it has flowered.

Lord Lester of Herne Hill

It is not for me to rebuke the noble Lord at all. What I believe is that the great old system, when gentlemen were gentlemen in the City of London and things could all be done with a handshake and by self-regulation, is, alas, long gone.

4.59 p.m

Lord Williams of Mostyn

My Lords, I am most grateful to the noble Lord, Lord Boardman, for raising these issues. My own contribution may not find entire favour with all noble Lords who have offered their thoughts so far. It seems to me that the grossest defect of the present system is described in the one word, "delay". It cannot be right to delay these matters for the length of time that we have seen recently.

I shall mention two names. I know neither of the people, and neither of them would recognise me in the street. It seems to me to be quite monstrous and indefensible that two persons, criticised and charged in Blue Arrow and in Guinness— Miss Brimelow in Blue Arrow, and Mr. Mayhew of Cazenove in Guinness— should have been hanging in the wind year in year out and ultimately find that the charge is dropped. I find that wholly indefensible.

The present powers of the Secretary of the Department of Trade and Industry or, as he likes to call himself, the President of the Board of Trade, are required. We need to look carefully at the operation of the powers in practice. There is a serious argument for a full-time body of inspectors. At the moment, as has been said, it is normally a Queen's Counsel and an accountant. They build up no body of experience and expertise.

I hope your Lordships will forgive me leaping on my usual hobby-horse— that is, my suggestion that High Court judges should retire at 65. If they did that, not least of the benefits would be that there would be a permanent inspectorate of exceptionally high quality which might be better relied upon to introduce the elements of fairness which are sometimes lacking. Of course, we have concentrated this afternoon on a fairly limited area. But the area is extremely wide, as the noble Baroness, Lady Miller of Hendon, pointed out. The Inland Revenue have draconian powers, as do many other tribunals— VAT tribunals not least among them.

It seems to me that the two characteristics one wants in DTI inquiries are quite simple. First, their procedures must be recognised to be fair, and plainly they are not. I cannot begin to approach the demolition which the noble Lord, Lord Lester of Herne Hill, applied. I do not agree with all his criticisms but many of them cannot be gainsaid. So there must be the acceptance that the procedures are fair, even if the findings are adverse to an individual on occasions, as is inevitable.

The second characteristic of an inquiry is that it should establish fact. One significant blemish over the past 10 years (a blemish one sees no longer) is the rush of blood to the head of both inspectors who see it as an opportunity for violent and vituperative language rather than confining themselves to a recitation of fact— a recitation of fact, incidentally, which is often much more devastating and effective than headline paragraphs towards the back of the report.

However, that is not a problem one needs to overstress. In 1989— 90 there were only five DTI outside inspections and even internally only 158. It is important also to bear in mind the mechanism and the regime that operates. It is designed essentially to protect companies or their shareholders from wrongdoing. It is designed to protect the public and maintain high standards in the financial community. I suggest that that inures to the benefit of both the public and the financial community. After all, small investors do not have lunch and do not keep books that record their luncheon guests, so far as I am aware; they do not conduct their business on the shake of a hand. They invest the totality of their modest life savings either by pension contributions indirectly, unit trusts or similar small transactions. They are given lamentably little protection at the moment by our system of company legislation or indeed by the operation of many companies.

There have been many examples recently where it seems to many of us that companies have been used as vehicles for directors' benefit and it is almost a heresy to point out occasionally that the company is not the property of the director; it is the property of the shareholders. There is hardly a day now (I hope to put this point moderately) where one does not read the business news in a reputable newspaper and sees another saga of greed and corruption with directors taking multi-million pound going away presents, to use the phrase of my noble friend Lord Dean of Beswick, not for running their institutions properly but as a consequence of departure in shame and disgrace. That cannot be justified and it is a significant blemish on the operation of commercial transactions in this country. It is partly to deal with that that the DTI regime exists, though I agree, with significant blemishes.

One must bear in mind also that the mechanism of being able to trade as a corporate entity is an extremely attractive privilege. It is a limited company. I have no friends who are Names at Lloyd's, but I expect they recognise the benefit of limited liability trading these days— one cannot have the penny and the bun forever. If one wants the attraction— and they are extremely significant for limited liability, plc or corporate trading — one is bound to incur some disadvantage. Some of the advantages have been understressed, whereas the disadvantages of that sort of inquiry may have been overstressed. After all, one has corporate secrecy; limited liability; the shareholders too often are passive either through ignorance in the case of small investors or acquiescence in the case of large pension fund and corporate investors whose history over the past 15 years has not been marvellous.

All those advantages inure and there must be some consequent disadvantages to those who may be subject to DTI inquiries. As an immediate step, we need the introduction of some safeguards; not endless cross-examination of every witness by counsel or solicitor for every person who may be investigated. Perhaps I may say in parenthesis that the history of the Orkney child abuse inquiry does not encourage one along that path when I believe £ 6 million of public money was spent — I almost said "wasted"— with no conclusion at the end of the day.

I conducted an inquiry— not a DTI inquiry— into allegations of abuse at a children's home. I sat with a lay assessor. We had to determine our own procedures, bearing in mind that simple lodestar that we should try to be fair. It is too easy a palliative to suggest that all inquiries to be just must be public. It would have been a gross wound to the child complainants in that case for their complaints, sometimes of serious sexual abuse and sometimes of violent abuse, to be heard in public. We must offer the opportunity for representation, to do as I believe we did; namely, to give a reasonable opportunity for people to know what they must meet; to give them the opportunity to read the transcript of their evidence and return if they wish or make re-submissions in writing; and, fundamentally and most importantly, to give anyone about whom complaint is made the opportunity to reply before the report is in final form.

There is therefore a degree of consensus among your Lordships, although I tried to apply a slightly cautionary brake. I must not use the phrase "cavalry charge" because my friend the noble Earl, Lord Ferrers, is not here today; he was troubled about cavalry charges yesterday. We need to be cautious about doing away with a system which has virtues. What it needs is immediate improvement substantially along the lines of what was said by the noble Lord, Lord Lester of Herne Hill, and ultimately, in our belief on this side, in the proper incorporation, funding and resourcing of something on the lines of the SEC in the United States. I am not sure whether that will please all your Lordships who peer from the other side of the House, but that is our remedy.

Finally, the Scott Inquiry may be intended to be outside the remit of this Motion. But, as it was referred to, in our opinion it is doing good public work and we are saddened by and deprecate what appears to be a fairly vigorously co-ordinated effort to rubbish the findings before they are published.

5.9 p.m

The Lord Advocate (Lord Rodger of Earlsferry)

My Lords, like other noble Lords who have spoken, I join in the thanks to my noble friend Lord Boardman for bringing before the House this afternoon this Motion, which raises a matter of great interest to its Members.

he noble Baroness, Lady O'Cathain, gave us perhaps a timely warning that we should not exaggerate the extent of fraud and the extent to which it affects business in this country. At the same time I think it is right to say that one cannot really imagine ourselves going back to those innocent days when all business was apparently done on a handshake. I have no doubt that even today much business takes place on the basis of trust. Indeed, any lawyer who looks at the files tracing the history of a dispute often finds that it begins in a situation of great trust which breaks down only gradually. The fact of the matter is that there is fraudulent behaviour around and one has to have machinery in place by way of appropriate regulatory authorities and so on to deal with that kind of conduct.

It is particularly important nowadays, when the market is no longer simply national but is to a high degree international, that those who are doing business on the market, or are thinking of doing business on it, should have confidence that it is a market in which they can operate with the knowledge that there is machinery to deal with matters such as fraud. It is fair to say that the amount of investments which are placed in the City of London tends to show that the systems we have command a good deal of confidence.

Nonetheless, in the course of the debate various different kinds of bodies have been mentioned. There has been much said of the DTI-type inquiry, but of course there are many others. The noble Lord, Lord Williams of Mostyn, mentioned ones such as the Orkney inquiry. It is perfectly plain that the procedures will not always and cannot always be the same.

Reference has also been made to criminal investigations. The matters there are for the Serious Fraud Office. Those are not in the same kind of way public inquiries.

These various kinds of inquiries point to different regimes which may all have a bearing on some particular case. It may, for example, be required at the outset that Ministers decide whether or not an inquiry should go ahead or whether or not it would be appropriate to give priority to the system of prosecution. That is a difficulty with the kind of inquiries set up for the DTI because they may often involve— not always of course— questions of criminal misconduct and there may come a stage, either before the inquiry is set up or even while the inquiry is running, when a decision has to be taken as to whether it would be more appropriate to go ahead with a prosecution or with the inquiry. That in itself can be one of the factors that leads to the kind of delay which has been mentioned several times in the course of the debate.

We would all share the belief that it is desirable that inquiries of whatever kind should be disposed of with the greatest possible speed. I remember noting that the famous trial in the last century of the city of Glasgow banker— there was a huge fraud on that occasion— had all been completed within four months of the discovery of the fraud. That would be unthinkable nowadays. It clearly would be desirable if it could be done, but the simple fact of the matter is that things are very much more complicated today than they were then. One does not have a simple set of books to look at.

So far as speed is concerned, it depends on what particular aspect one is looking at. If one is dealing with trials, in that connection a working group has been set up by my right honourable and learned friend the Attorney-General and my noble and learned friend the Lord Chancellor to look into the question of trials and to see whether anything can be done on that. On the matter of inquiries, there are two competing values. It is said, on the one hand, that these should take place speedily. But, on the other hand, it is said that they should always have the full type of safeguards with full cross-examination and so on. One cannot necessarily have both. As the noble Lord, Lord Williams of Mostyn, said, the Orkney inquiry had a very great deal of cross-examination. The question is whether a faster procedure could not have been devised or used in that circumstance. It is easy to criticise but one must remember that sensitive issues relating to children and so on arose in that case and people wished to put their points of view. But speed and a full and elaborate procedure of cross-examination do not always go hand in hand.

It is true to say that there is a worry about the length of time taken to publish DTI reports. That can be because the investigation takes a long time; it can be because the investigation is delayed by a prosecution; it can be that even if the report has been prepared, publication is in the end delayed because of, shall we say, criminal proceedings. Those are all matters which may affect the speed with which the result of such an inquiry may come to be known.

The noble Lord, Lord Lester, made a very powerful contribution criticising the matter of DTI reports. It is right to remember, as the noble Lord, Lord Williams, pointed out, that they apply to people who are operating under the system of limited liability. A great privilege goes with that and those people are, after all, stewards of shareholders' funds. It is therefore important that a system is in position which ensures that any wrongdoing is rooted out and lessons are learnt for the future.

I accept that there must be occasions when individuals feel that they have been criticised unfairly. That has to be balanced against the important benefits which flow from the reports published. No one in the debate has suggested for a moment that a lot of those reports do not contain most valuable recommendations. The reports often reveal malpractices or defects which may be cured by changes in practice or indeed by remedial legislation. The reports are prepared by distinguished and authoritative inspectors. I noted the suggestion of the noble Lord, Lord Williams, that perhaps retired judges might be used for that. It is true to say that the present inspectors are invariably people of great distinction in the law and in accountancy and that their reports have carried great weight.

It is also true to say that at the end of the day the inspectors, if their reports are to carry great weight, should feel free to express the conclusions which they reach in the light of their investigations. They do that in various ways. Not all the reports which appear are of the same tenor. Some are more like plain factual statements; others are more highly coloured. Some are perhaps slightly exaggerated in the telling by the press. But I accept that some have been highly critical. Where the criticism is justified, that is proper.

Criticism has been levelled at the particular form of procedures used in these reports. I am sure noble Lords will have noticed what is said. It is true to say that the procedures have been to a good extent changed or improved in practice over the years, and it is correct to say that that the guiding star in all such procedures must be, according to the judgment of the noble and learned Lord, Lord Denning, in the Pergamon Press case, fairness.

The procedures must be fair. As a result of the examination of procedures in the Pergamon Press case, the practice which has been alluded to of making the critical passages available to people for their comment, before publication, has been introduced. To some extent that meets the kind of criticisms which have been made. I do not believe that the speed or the effectiveness of such inquiries would necessarily be improved by the kind of suggestions which have been made for perhaps fuller cross-examination and so on.

In the event, people may feel that the criticism has been harsh. If it has been fair, then obviously that is no bad thing. On balance, even though occasionally there may be criticisms which people feel are unjustified— I accept that it is difficult for them to get redress in such cases — nonetheless, the public interest is served by the kind of system which we have at the moment.

A particular matter was raised by the noble Lord, Lord Spens, in connection with the DTI inspectors. That was the use of the particular powers under the Companies Act to obtain answers to questions from people which could then be used in evidence. He said that this matter had now been taken by Mr. Saunders to the European Court of Human Rights. I wish to be quite clear. The matter has been to the Commission and it has held the application to be partially admissible. It has not yet proceeded to consider it or to report on its merits. Therefore, we do not yet know whether it has found that there has been a breach. After that, the matter will almost certainly go to the Court of Human Rights. The Government believe that the position is in line with the convention and they are prepared to defend the matter. In case there is some doubt about it, at present I stress that the position is as I have stated.

In the course of various remarks, there was a suggestion that jury trials were not really appropriate for matters relating to fraud. That is obviously a question which has been much discussed over the years. As I believe we all know, in the report of the noble and learned Lord, Lord Roskill, he recommended that jury trials should not be used in certain of these cases. The arguments against their use have been made by several noble Lords. But there are very powerful arguments in their favour. The Government remain unpersuaded that they should abandon jury trials.

Obviously, there are difficulties in presenting the issues to a jury, but how they present their case is a matter for consideration by the prosecution and the defence. Over recent years the use of graphics and so on has made the presentation more vivid and understandable. But finally, despite what may be said, when one strips down the technicalities, the issue at the heart of any fraud case is whether or not the defendants were acting honestly or dishonestly. Ultimately that is the decision that has to be reached. The Government remain persuaded that that is an issue which is best decided, as it is in all other spheres, not by a judge or judges, however distinguished, but by ordinary members of the public who come to it with fresh minds and who apply their best endeavours to reach a decision on the matter. I believe that that remains the best way. We should be seeking to refine our procedures in order to make the evidence vivid to the jury rather than introducing a novel procedure which would have uncertain effects.

In conclusion, there is no single solution to the question of procedures. The noble Lord, Lord Williams, has given us a very good example of the kind of inquiry in which he was engaged where the approach which he used was obviously geared to the matter being investigated. Obviously, that would not have been an appropriate way to approach the inquiry into a major tragedy like the King's Cross disaster or into the one with which I am very familiar; namely, the Piper Alpha disaster. There, something very different had to be used.

Whatever form is used, as the noble Lord, Lord Williams, said, the key must be fairness. One has always to consider the appropriate procedure in the circumstances having regard to fairness. For example, I know that in the procedures used in the large disaster inquiries that is something which is very carefully considered. Even if the precise formulation in the Salmon Report is not always used exactly, the principles and the spirit of that report very much guide those who are looking into such matters. They are concerned to make sure that the procedures are fair. In that they have regard for the kind of principles which the noble and learned Lord, Lord Scarman, laid down when he carried out investigations some years ago. They have become the guiding star for the setting up of such inquiries. I believe that I can assure noble Lords that these are principles which are all designed to ensure that the issue is resolved, having regard to fairness to all those who have an interest in the inquiry.

As I say, there is no single solution. I do not say that all our inquiry procedures are perfect. Obviously, they are constantly subject to review and improvement. The debate which we have had today has taken a wide-ranging look at these various matters and I have no doubt that the Government and others involved will have found in the debate much valuable material for consideration.

5.27 p.m

Lord Boardman

My Lords, I am most grateful to noble Lords and noble Baronesses who have taken part in the debate. As I predicted when I opened it, the Motion was drawn in such a way that was bound to attract a variety of special cases and points of view. I welcome those and I am sure that I am not expected to respond to them. The universal theme throughout the debate was that we must look for fairness. There were a number of findings of unfairness in the present system. I was a little disappointed that, apart from the speakers on the Front Benches, we did not hear from noble Lords on the Opposition Benches able to speak on the subject of fairness. It i s personal fairness with which this debate is concerned.

I very much welcome what was said by the noble Lord, Lord Lester of Herne Hill. I can go along with almost all the points he made as regards the faults in the present system. I reserve judgment on the question of the SEC on the American style. As regards the criticisms which he made about the present system, I believe that they were fully justified. I wish that in my opening speech I had been able to put some of them as well as he did.

There was less acceptance from the noble Lord, Lord Williams of Mostyn, of the weakness in the safeguards that exist. I was somewhat disappointed with his response to that. The noble Lord referred to the Scott Inquiry. In my opening remarks I said that I was not going to make any reference to it. It is not a statutory inquiry. I do not believe that he would expect me to respond now. In saying that we should exercise caution in doing away with the present system, the noble Lord failed to recognise the damage and unfairness which is caused in certain instances under the present system.

Several noble Lords have referred to the question of speed: to the excessive delay in many inquiries and to the damage that has resulted. I was therefore disappointed when my noble and learned friend Lord Rodger of Earlsferry suggested that speed and method do not necessarily go hand in hand. Perhaps I got the wrong impression from him that speed was rather more important than the fairness of the outcome. I am sure that that would not be his view. My noble and learned friend is shaking his head. I believe that fairness must come first. Of course, speed is very important, but we want fairness and, subject to that, the maximum speed.

My noble and learned friend Lord Rodger of Earlsferry suggested that the procedure has improved over the years. I wish that that were so. I think that procedure has tended to slacken since the rather rigorous guidelines that we were given in early reports, such as that of the Salmon Commission, to which my noble friend Lord Morris referred.

I wonder whether the balance between public advantage and private rights is correct. I do not think that we in this House should accept a system which can lead to very clear cases of unfairness. I think that the House would be wrong if it were to say that such a system is unfair but we should nevertheless put up with it because it is the best that we can produce or is at least quick. I hope that the procedures will be considered with considerable care to see whether improvements can be made.

I very much endorse the majority of the points that were made by the noble Lord, Lord Lester, and the many points that have been made by my noble friends. With that, I thank ail those who have participated in the debate and beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.