§ 4.18 p.m.
§ Lord Goff of Chieveley
My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.
Moved, That the House do now resolve itself into Committee.—(Lord Goff of Chieveley.)
§ On Question, Motion agreed to.
§ House in Committee accordingly.
§ [The LORD ABERDARE in the Chair.]
§ Clause 1 [Obtaining a money transfer by deception]:
Lord Donaldson of Lymington moved Amendment No. 1:
Page I, line 7, leave out ("money") and insert ("value").
§ The noble and learned Lord said: In moving this Amendment, I shall speak, with the leave of the Committee, to all the amendments in my name, since they form a cohesive and, I believe, coherent whole.
§ I made clear at Second Reading that my interest in the Bill arises from the fact that I am chairman of the Financial Law Panel. That is a non-profit making body set up by the Bank of England and the Corporation of London to act, in effect, as a specialist law commission for the wholesale financial markets of the United Kingdom.
§ As the Committee knows, in July this year, the House, acting in its judicial capacity heard the Preddy appeals. Those appeals concerned electronic money transfers as part of mortgage frauds. The decision that no criminal offence had been committed surprised many in the legal profession, though I should make it clear that I do not for one moment suggest that it was wrong. It did, however, have the practical effect of decriminalising some fraudulent electronic money transfers. It also had the effect of decriminalising the fraudulent electronic transfer of bonds and securities in so far as they are indistinguishable from money transfers.
§ This Chamber, in its legislative capacity, is now being invited to close one barrel of what is in truth a double-barrelled loophole in the law. My amendments seek to close the other barrel of the Preddy loophole. They are designed to be simple and discrete. They add "investments", where appropriate, and substitute "value" for "money", thereby including both money and bonds and securities.797
§ The Law Commission, in its admirable report which gave birth to this Bill, sought to confine its provisions to what may be described, without disrespect, as the "Preddv mischief". Unfortunately it failed to appreciate that the electronic transfer of investments is a significant part of that mischief. That that should be the case may seem surprising unless one appreciates the way in which the wholesale financial markets operate, not only in London, but also worldwide.
§ If any physical manifestation of the bonds or securities is created by the issuer—and sometimes it is not—it or a promise to issue on request is conveyed to a custodian bank or similar institution. Thereafter, all dealings in the bonds or securities are affected by credit and debit entries in the accounts of the transferor or transferee kept with the custodian. No physical transfer ever takes place and the whole process is indistinguishable from the processes involved in a transfer of foreign currency held to the credit of a bank account.
§ My noble friend Lord Alexander of Weedon, who is unable to be present today, tells me that the banking community considers that the change I have proposed would make a valuable contribution on the footing that it could be dealt with as a discrete point which will not jeopardise the speedy passage of the Bill. The Bank of England expressed a similar view. The point is indeed discrete. The amendments cannot adversely affect any legitimate transaction since the Bill, with or without amendments, is solely concerned with dishonesty.
§ I accept that the amendments may cover some transactions which would fall within the criminal law notwithstanding Preddy. But that is equally true of some money transfers which will be covered by the Bill. So the only true objection to my amendments is their potential effect upon the speedy passage of the Bill. That is a matter which is exclusively within the control of the Government. I hoped and expected a degree of co-operation and joint endeavour which could and would have achieved that objective. I have been gravely disappointed. Instead, I have been told that this is all very complicated and difficult, which it is not. I have been told that my amendments could have unforeseen adverse consequences. No one can give a guarantee concerning the unforeseen; but for the reasons I have given I can guarantee that they will not be adverse.
§ I accept that the Home Office, in its responsibility for the reform of the criminal law, has unrivalled experience of legislating in haste and repenting at leisure. However, I can assure the Committee that this is one of those rare cases where it would not be at risk.
§ No one doubts the urgent need for this Bill to become law; no one would wish to impede its progress in any way. Proper consideration of a limited widening of the scope of the Bill could have been achieved if the Government's attitude had been different. As matters stand, it seems that I must reluctantly accept that, so far 798 as this Bill is concerned, my attempt to enable this Chamber to fulfil its traditional role as a revising Chamber will fail. I beg to move.
§ Lord Goff of Chieveley
Perhaps I may be allowed to make one or two points about the amendments of my noble and learned friend. We should be extremely grateful to him for drawing attention to the specific matter to which he referred. There is obviously great force in what he said and plainly his proposed amendments raise a matter of considerable importance.
I have only one worry, which my noble and learned friend foreshadowed in speaking to your Lordships. The gap in our law revealed by Preddy, which is concerned with straightforward money transactions, is literally enormous. It potentially affects a vast range of transactions, but especially mortgage and other lending transactions. It is obviously a matter of deep concern, especially for the banks and building societies. It is essential that we move as quickly as possible to fill the gap. The amendments of my noble and learned friend, though important, do not cover so wide a range of transactions as those.
My noble and learned friend's proposal was before the Law Commission last summer and the Law Commission then took the view that it was best to go ahead with an absolutely clean, straightforward Bill to deal with the Preddv problem itself. There is also a review of dishonesty pending at the Law Commission and it is anxious to proceed with that as soon and as quickly as possible. It will be possible for my noble and learned friend's proposals to be dealt with in that review.
One reason why the Preddy gap occurred was revealed during the hearing in your Lordships' Chamber in its judicial function; that is, that there was an over-hasty amendment to the proposed legislation. That was revealed in Preddy itself and it became clear to me on that occasion that something may appear to be simple, but when looked at with care it is not quite so simple. I am grateful to my noble and learned friend but beg him to be so kind as to consider withdrawing his amendments.
§ Baroness Blatch
I am grateful to the noble and learned Lord, Lord Donaldson, for bringing this issue before the Committee today. The noble and learned Lord highlighted an issue which requires careful consideration and he put the case for the amendments with characteristic clarity and incisiveness.
There are a number of reasons why we have difficulty with these amendments and why I shall invite the Committee to reject them. This is not a new point. The Law Commission looked at the point when it was raised by the Financial Law Panel during its consultation exercise this summer. The commission concluded that it needed further consideration and consultation that was not possible in the timescale of the main Preddy review. It proposed to include it in its current review of dishonesty. That is the right way to deal with the problem and I shall return to that specific point in a moment. It may be helpful if I explain why the Government prefer not to tackle the possibility of 799 problems in this area by the type of amendment proposed by the noble and learned Lord, Lord Donaldson.
This is a complex problem which may exist in a wide range of circumstances well beyond the position of the well-known securities depositories. The essence of the problem revealed in Preddy is that when one writes a cheque, money is not actually transferred from a specific bank to that of the payee. What happens is that an instruction is given to the bank to reduce the amount standing in one account and to obtain an increase in the amount standing in the payee's account. In essence, the bank account is a record of the extent to which one has the right to call for the bank to deliver another asset; in the case of a bank account, that is cash.
The noble and learned Lord, Lord Donaldson, argues that it does not matter what is in the account. It may be shares, eurobonds or any other security. In fact, it could be anything. Thus, for example, I can place metal in a warehouse approved by the London Metal Exchange and obtain a warrant which may be traded on that exchange. If I am a farmer I can put grain into an elevator on that basis or milk with a farmer's co-operative. But each situation will be different and the rights will depend on the precise legal nature of the contract between the depositor and the depository. It may therefore depend on the whole structure of law relating to rights, deposits and trusts in the jurisdiction concerned.
The Committee will no doubt be pleased to learn that no such problem can arise in relation to the holding and transfer of dematerialised securities in the new CREST system for the London securities market. In the CREST system, both the instruction to transfer and the evidence of title to the shares are fully dematerialised and this does not affect the nature of the rights held by the owner or the transferee.
Although the shares are dematerialised, there is still a company register, whether in paper or electronic form, which records the members of the company for the time being, and which must be amended each time there is a transfer of ownership of the shares. A transfer of shares is procured by the erasure of one name from the register and the insertion of a new name. The CREST system transfers to the purchaser the ownership of the actual shares in the company, not merely the rights of an account holder to call for delivery of a share.
At the more technical level, we should want to look in much more detail than we have had time for so far at the terms of the amendment. Specialist terms such as "investment" and "investment business" are taken from the Financial Services Act and have precise, carefully drawn meanings. We will need to be certain before legislation is brought forward on this point that the coverage and the cross-references are right. For example, whether or not a piece of property constitutes an investment may depend on the terms of a contract which provides for its forward delivery. Certain persons can provide depository-type services without doing investment business.
I said I would return to the consideration of this issue by the Law Commission. I am pleased to be able to tell the Committee that the Secretary of State is minded to 800 ask the Law Commission to look at the issue raised by the amendments as a matter of priority, and I shall write to the noble and learned Lord about this. I can give him a personal assurance that I will want to press this myself, because I know how important it is to reach a conclusion on the issue. I am, therefore, asking the Committee to reject the amendments, not because these are not important issues, but because there are a number of matters to which I have already pointed which need to be resolved and consulted upon before legislating.
I do not believe that this opportunity should be taken ahead of more detailed work by the Law Commission on the issues raised by the noble and learned Lord. This Bill is urgent and it is important. There is no doubt of that. A problem has been revealed by Regina v. Preddy. It is a well specified problem and I believe we should tackle it now. The Bill provides a well drafted solution. It has been thoroughly researched and crafted by the Law Commission and we are most grateful for the tremendous effort in doing this work so speedily.
This well thought through measure needs to be enacted quickly, not only for the reasons that I mentioned but also for those that were put forward by the noble and learned Lord, Lord Goff. Although the noble and learned Lord, Lord Donaldson, feels strongly about making progress on the subject of these amendments, I hope he will feel able to withdraw his amendments so that the Bill may proceed without delay and the Law Commission can take up the problem that has been properly identified by the amendments.
§ 4.30 p.m.
§ Lord Donaldson of Lymington
I am grateful to the noble Baroness for the crumb of comfort which I have been given that there will be an expedited inquiry by the Law Commission into this issue. I hope it will be divorced from the general inquiry which is so wide-ranging that it will go on for the better part of my remaining lifetime. I also hope that whatever government are in power at that time will provide time to enact whatever are the results of that inquiry. So far as the idea of keeping an account of the contents of a grain silo is concerned, I regard that as somewhat far-fetched. The idea that the London Metal Exchange may use accounts of this nature is not far fetched, and I was well aware of it in putting down my amendment. However, it is only the dishonest metal trader who would have trouble with my amendments. In no way can it affect honest trading.
In view of the feeling of the Committee, and with a view to making a contribution to the progress of this Bill, I ask leave to withdraw this amendment, and, if I may say in advance, I shall not be moving any of the other amendments.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 2 to 4 not moved.]
Lord Goff of Chieveley moved Amendment No. 5:
Page I, line 16, at end insert ("(in particular)").
§ The noble and learned Lord said: In moving this amendment I shall speak also to Amendment No. 14. They both serve exactly the same function: simply to 801 make sure that the matters described in both places as "immaterial" shall not be the only matters which are so regarded. The first amendment was tabled in response to a suggestion by my noble and learned friend Lord Wilberforce and my noble friend Lord Williams of Mostyn that the specified matter should not be exhaustive. The second amendment has the same purpose in the second clause.
§ In moving this amendment, perhaps I may express the hope that the Committee will agree that in view of the widespread support for the principles of the Bill as introduced, it will be possible to take the remaining stages formally early next week. I understand that, subject, of course, to proceedings in another place, the Bill has a good chance of becoming law by Christmas. I very much hope your Lordships will agree that it would be wholly for the best if this should happen.
§ Baroness Blatch
The two amendments have the same effect: to make it clear that matters described as "immaterial" in new Section 15A(4) and new Section 24A(5) are not exhaustive. As the noble and learned Lord, Lord Goff, has said, they are minor amendments but nonetheless important. As was said at Second Reading, an exhaustive list of immaterial matters could tie the hands of the judiciary when determining whether an offence has been committed. The Government welcome this clarification and we lend our full support to these amendments.
§ Lord Wilberforce
I am grateful for these amendments, particularly Amendment No. 5, which responds to observations I made on Second Reading which received an echo from the Opposition Benches from the noble Lord, Lord Williams of Mostyn. I must say, if it is not too ungrateful, that the amendments do not go as far as I would have liked. I would have preferred not to have a list at all. But if we are to have a list, insertion of these words, if sanctified by the parliamentary draftsman, is to me satisfactory. I am glad to take the half-a-loaf which is offered on this occasion.
§ On Question, amendment agreed to.
§ [Amendments Nos. 6 to 11 not moved.]
§ Clause 1, as amended, agreed to.
§ Clause 2 [Retaining credits from dishonest sources, etc.]:
§ [Amendments Nos. 12 and 13 not moved.]
Lord Goff of Chieveley moved Amendment No.14:
Page 3, line 8, after ("immaterial") insert ("(in particular)").
§ The noble and learned Lord said: My Lords, I beg to move.
§ On Question, amendment agreed to.
§ [Amendments Nos. 15 to 19 not moved.]
§ Clause 2, as amended, agreed to.
§ Clause 3 [The new offences: jurisdiction]:
§ [Amendment No. 20 not moved.]802
§ Clause 3 agreed to.
§ Remaining clauses agreed to.
§ House resumed: Bill reported with amendments.