Lords Sitting of 14 January 1997

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Norwich.

Lord Hutton
The Right Honourable Sir James Brian Edward Hutton, Lord Chief Justice of Northern Ireland, having been appointed a Lord of Appeal in Ordinary and created Baron Hutton, of Bresagh in the County of Down, for life—Was, in his robes, introduced between the Lord Lloyd of Berwick and the Lord Steyn.
Lord Hankey Lord Hankey—Sat first in Parliament after the death of his father.

Lord Hutton

  Drinking and Driving: Breath Tests
  2.47 p.m.
  Lord Campbell of Croy Lord Campbell of Croy asked Her Majesty's Government:
  What conclusions they have reached from the results of campaigns in England, Scotland and Wales to reduce drinking and driving over the period of Christmas and the New Year.
  The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen): My Lords, in Scotland the police conducted a record 134,000 tests, which resulted in 1,155 drivers failing or refusing to take a breath test, less than 1 per cent., the lowest percentage ever recorded. In England and Wales the police did not publish the number of tests carried out during the campaign period but 5,209 drivers failed or refused to take a test. That was an increase on the previous year but it may largely be the result of an increase in the number of tests. It is too early to draw any firm conclusions about the effectiveness of the campaigns over the holiday period. But it is clear that there is a hard core of people who are choosing to ignore the drink/drive message.
  Lord Campbell of Croy: My Lords, I am grateful to my noble friend for his reply, with such information as he has been able to supply. Did he notice that the first results announced gave the impression that the situation was worse than a year earlier, but that later it was discovered that many more drivers had been tested this time so that the percentage of drivers under the limit was, if anything, an improvement? Is it intended in future not to disclose the total of numbers tested, as appears to have happened in England and Wales in some cases this year, or was it simply in this case a lapse in numeracy?
  Viscount Goschen: My Lords, I agree with my noble friend that it is important to put the number of people who failed a test or failed to take part in a test in
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  perspective in terms of the number of people who were tested. It is clear that because the police did not provide that total figure it has been more difficult to extrapolate those results. Discussions will be going on between my department and the Association of Chief Police Officers with a view to making better comparisons in future.
  Lord Clinton-Davis: My Lords, in order to deal more effectively with the hard core to whom the Minister referred, is it not time to take a rather tougher stance in relation to drink-driving? Would it not be appropriate to take into account very strongly indeed the views of the AA, the BMA and the Association of Chief Police Officers that the legal limit for drink-driving should be reduced?
  Viscount Goschen: My Lords, that is one theory. However, on the other hand, in the past 10 years or so there has been considerable success in reducing the amount of people who drink-drive and in changing the culture. This has been done through hard enforcement, getting the message across with the use of advertising campaigns and so on. The number of fatalities has fallen very dramatically indeed. Overall, the campaigns have been a great success. There does not seem to be evidence that a reduction in the level of alcohol permissible would have a particular effect on the overall trend in terms of the number of people who drink-drive.
  Lord Clinton-Davis: My Lords, is the Minister against the recommendation of the AA, the BMA and the Association of Chief Police Officers?
  Viscount Goschen: My Lords, the present limit is the level at which for most drivers the chance of being involved in an accident starts to rise sharply. We believe that the priority is to enforce the law at the present limit. It is a limit that people readily understand. We believe that the important thing is to make sure that people do not exceed that limit and do not drink-drive and therefore cause accidents.
  Lord Strathcarron: My Lords, does my noble friend agree that it may be that more accidents are caused by people who cannot see properly, particularly at night, than by drivers who are over the limit? As being over the limit is not considered respectable but not being able to see properly is respectable, does my noble friend agree that no government have ever done anything about this important safety aspect? So far as I am concerned, whether I am run over by a drunken driver or someone who cannot see properly, the result will be exactly the same.
  Viscount Goschen: My Lords, it is vital that every effort is taken to ensure that accidents do not happen whatever the cause. But drink driving is a particular cause and it can be easily identified. Something can and has been done about it. The results of the campaigns that we have run have been very impressive indeed. However, from this evidence it appears that there is more work to be done. We shall not slacken in our

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  efforts to get the message across. My noble friend is quite right in that it is extremely important that people have proper vision in order to drive safely on the roads.
  Lord Skelmersdale: My Lords, has any research been done into the ages of the people tested? It is my very limited experience that young people of my children's age simply do not touch drink when they are driving.
  Viscount Goschen: My Lords, I am very pleased to hear of my noble friend's experience. I believe that there has been some evidence to suggest that certain elements among younger people have failed to take the message on board. That is why we have targeted in the past our campaigns at younger drivers to get over the message that drinking and driving is dangerous and can lead to death or to people being scarred for life.
  Lord Avebury: My Lords, do the Government agree that the level of driving skill is impaired by the consumption of alcohol in amounts smaller than that sufficient to put somebody over the limit? If that is the case, are there not still people being killed or severely injured on the roads in consequence of people drinking amounts of alcohol which are considered to be safe?
  Viscount Goschen: My Lords, I am sure that there will always be debate about the amount of alcohol that should represent the legal limit. However, I have said that even with the limit staying as it is and with people comprehending that limit of 80 milligrams, there has been considerable success. We believe that the priority lies in educating people and pushing hard on enforcement.
  Lord Monson: My Lords, does the Minister agree that recent research in the United States, and latterly in Britain, seems to indicate that far more traffic accidents are caused by sober drivers who have had an inadequate amount of sleep and who doze off at the wheel, than by drivers who are over the limit to some degree? Does he further agree that there appears to be a conspiracy of silence on that? What do the Government propose to do about it?
  Viscount Goschen: My Lords, I do not believe that there has been a conspiracy of silence. If the noble Lord has travelled along motorways, he will have occasionally seen signs informing people that tiredness kills and that they should take a break from driving. It is an extremely important message to get across. The fact is that some people are still acting irresponsibly and drinking over the limit. We aim to apply the maximum pressure on such people to stop this behaviour.
  Lord Geddes: My Lords, is it a statistically proven fact that there is more drink driving over the Christmas-New Year period or is it merely the fact that the police are more vigilant over that period?
  Viscount Goschen: My Lords, I am sure it is the fact that there is more drinking over the Christmas and the New Year period per se. Therefore, it has been our policy to make sure over that particular time that we run an advertising campaign which is hard hitting and that the police take forward their enforcement duties even more vigorously during that time. It has been effective and we shall continue to concentrate our efforts over that particular period.
  Lord Campbell of Croy: My Lords, can my noble friend attribute any particular reason for the reduction and improvement in the figures for Scotland, as he has indicated? They have shown a considerable improvement, but from my own experience over the past three weeks I saw no reduction in the level of celebrations over Christmas and the New Year in Scotland.
  Viscount Goschen: My Lords, we are very pleased that the percentage has fallen and we shall continue to encourage that. We shall not put any less effort into our campaigns, and we aim to learn from the Scottish experience.

  Gurkhas: Accompanied Service in UK
  2.56 p.m.
  Lord Boyd-Carpenter Lord Boyd-Carpenter asked Her Majesty's Government:
  Whether they will reconsider their decision not to provide accommodation for the families of Gurkha soldiers posted to the United Kingdom.
  The Parliamentary Under-Secretary of State, Ministry of Defence (Earl Howe): My Lords, no such decision has been made. As I made clear to the House on 1lth December, the Ministry of Defence is currently conducting a wide-ranging review of Gurkha terms and conditions of service. The question of married accompanied service for Gurkhas in the United Kingdom is one of the issues being studied. We hope to be able to announce the results of the review to Parliament shortly.
  Lord Boyd-Carpenter: My Lords, when my noble friend says that no such decision has been reached, that means that there has been no decision to provide accommodation for the families of Gurkha soldiers. Is there any reason whatever why Gurkhas posted to this country should not receive the same treatment for their families as those who are born in this country?
  Earl Howe: My Lords, I am grateful to my noble friend for his observations. As I said in our short debate last month, I believe that accompanied married service for Gurkhas is a legitimate aspiration for the brigade. However, this cannot be looked at in isolation because there are implications for healthcare, education, benefits and so forth. These matters have to be addressed in the

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  round and the Government are doing just that. I believe that, for the sake of Gurkha families, we must get the package right.
  Viscount Slim: My Lords, can the Minister give some time span when a decision, one way or the other, will come from Her Majesty's Government? Is he not aware that this problem has been around for some time? Surely Her Majesty's Government can make a decision pretty quickly on this subject, despite the need to liaise with other ministries.
  Earl Howe: My Lords, the Government are addressing the question with suitable urgency. As I said, a decision will be announced shortly. I expect that to be within four weeks or so. I am sure that the noble Viscount will understand that the withdrawal from Hong Kong marks an important change in the way that the Gurkhas have been posted. It is effectively a shift in the centre of gravity for the brigade from the Far East to the United Kingdom, which brings with it all kinds of important questions which have to be addressed.
  Lord Harding of Petherton: My Lords, the Government seem to have taken a very long time, but when they do decide will my noble friend confirm that Gurkha soldiers will be allowed only one accompanied tour during their service engagement, as has been the case in the past, I understand, unless they are a Queen's Gurkha officer? If that is the case, does the Minister believe that this is a shabby way to treat soldiers who are serving this country alongside our own Armed Forces?
  Earl Howe: My Lords, with great respect to my noble friend, he is leaping ahead a little. Once the Government make their announcement, they can be judged on the content of that announcement. Currently, Gurkhas have no entitlement to accompanied service in the UK, principally because it has never been an issue in the past. Only a small proportion of Gurkha service has been spent in the UK; the majority has been spent in the Far East, where accompanied service has been widely available. This is a new situation and I humbly suggest to my noble friend that he should await the Government's announcement and comment on that.
  Lord Dean of Beswick: My Lords, is the Minister aware that it is not only Gurkhas and their families who appear to be getting a rather poor deal from this Government with regard to the provision of housing? Is the Minister aware that a press report during the Christmas Recess showed that the proportion of former servicemen sleeping rough because they have nowhere to live could be as high as one in four? If that is the situation, is it not disgraceful that any government should have allowed it to develop?
  Earl Howe: My Lords, with great respect to the noble Lord, I think that that point falls outside the scope of the Question. There is no evidence whatsoever that there is an unduly high proportion of ex-servicemen homeless on the streets.
  Lord Harris of Greenwich: My Lords, when the Government eventually reach a conclusion on this matter, will the announcement be made by means of an oral Statement in this House and not by way of a Written Answer?
  Earl Howe: My Lords, I am grateful to the noble Lord for that question. If there is a wish, expressed through the usual channels, for a Statement to be made, I am sure that that will be taken into account.
  Lord Wyatt of Weeford: My Lords, how can the noble Earl behave as though there were any doubt about the proper course of action with regard to the Gurkhas? How can there be any such doubt when the Gurkhas have served us so well and so faithfully for so long? Everybody knows what the answer ought to be, so why cannot the Government give it now?
  Earl Howe: My Lords, for the simple reason that, as I have stated, there are wide implications for a number of departments, not simply for the Ministry of Defence. The Gurkhas are an integral part of the British Army. They will remain so for the foreseeable future. Their contribution is valuable and is highly regarded. I believe that that should send the appropriate signal to your Lordships that the Government's intentions are in the right place.
  Earl Russell: My Lords, I appreciate the noble Earl's point that homelessness is outside his brief, but before he repeats the statement that there is no evidence of exceptional homelessness among ex-servicemen, may I ask him to look at last year's report by Crisis on homelessness last Christmas?
  Earl Howe: My Lords, I shall do so gladly and, if I have reason to correct anything that I have said, I shall, of course, write to the noble Earl.
  Lord Williams of Elvel: My Lords, is the noble Earl aware that we welcome his statement that the Gurkhas are an integral part of the British Armed Forces and that they should therefore be treated as an integral part of the British Armed Forces and in exactly the same way as other parts of the Armed Forces? I hope that the noble Earl accepts that interpretation of his statement. Is the noble Earl further aware that when we last had an exchange on this matter he promised us the result of the review before Christmas—he was referring to last Christmas—but that Christmas has come and gone? To repeat the point made by the noble Viscount, Lord Slim, that this is a matter of urgency, will the noble Earl say that, given that there was no result before Christmas, we shall at least have something before Easter?
  Earl Howe: My Lords, if the noble Earl reads the Hansard report of that previous debate, he will see that I undertook to make an announcement shortly after Christmas. I believe that we shall be able to do that and I have indicated that it should happen within four weeks.

  Income Support: Direct Payments
  3.3 p.m.
  Earl Russell Earl Russell asked Her Majesty's Government:
  Whether they have any plans to alter the system of direct payment deductions from income support and, if so, which resource implications for other departments they will consider when costing such a proposal.
  The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish): My Lords, on 19th July 1996, the Secretary of State for Social Security announced a review of income support direct payments for fuel and water. As part of the review, officials consulted over 50 groups including the industry regulators, utility companies, consumer groups, and relevant other government departments. Ministers have now received a report and will consider carefully all the comments made before reaching any conclusions about the future of the scheme.
  Earl Russell: My Lords, I thank the Minister for saying that he has reached no conclusions. Before he reaches conclusions may I ask him which cost implications for other departments he intends to take into account?
  Lord Mackay of Ardbrecknish: My Lords, as I said, we have consulted our colleagues in other departments. Ministers have also had an opportunity to comment and we shall be taking what they said into account. I am not prepared to go further and to divulge what they said to us. Ministers in the Department of Social Security have still to meet to consider the issue.
  Baroness Hollis of Heigham: My Lords, the third of a million or so people who make direct payments for fuel or water do so because they have difficulty meeting their bills. The Government estimate that if these changes go ahead the Government will save £18 million. What estimate have the Government made of the number of people who will face disconnection of their water and fuel?
  Lord Mackay of Ardbrecknish: My Lords, the interrelationship between the existence of direct payments and disconnection is one of the factors we shall be taking into account. However, newly on the scene are different methods of payment to the utilities. There are, for example, weekly and monthly payment facilities at post offices and pre-payment meters. A new system of payment is coming on-stream called "pay point". We have to consider all of those factors when looking at the additional burden which direct payment undoubtedly causes the Department of Social Security. Although we are in no doubt of the importance of direct payment for some of our customers, especially those who get into considerable debt and may be cut off, a considerable number of people on direct payment use it to pay for current consumption because they do not have any outstanding debt.
  Lord Skelmersdale: My Lords, my noble friend the Minister gave a list of consultees on the issue. Was that
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  list inclusive or exclusive? I have particularly in mind the need on occasions such as this to consult the Social Security Advisory Committee.
  Lord Mackay of Ardbrecknish: My Lords, at this stage I do not think that the Social Security Advisory Committee would be consulted. My recollection is that the regulations governing how we deal with the Social Security Advisory Committee state that we should consult it once we have draft proposals. If we decide to make proposals that require regulation, obviously we shall consult the Social Security Advisory Committee as we are obliged to do.
  Baroness Hollis of Heigham: My Lords, will the Minister confirm that the Government's own research in 1994 stated that far from the scheme being cut it should be expanded; otherwise disconnections would mount?
  Lord Mackay of Ardbrecknish: My Lords, an interesting point when considering disconnections is that, contrary to many of the stories run by the Opposition at the time of privatisation, the number of disconnections since the privatisation of gas, electricity and water has fallen dramatically as the privatised companies have taken sensible steps to enable people who have difficulty paying their bills to find ways of doing so. It is to the companies' great credit that disconnections in, for example, the electricity industry had by 1995 decreased to only 838 for the whole of that year. The noble Baroness should take that point into account. I shall not go further because, as I said, Ministers have still to meet to decide what steps to take regarding such payments.
  Lord Stailard: My Lords, referring back to the original Question, can the Minister say which departments were consulted?
  Lord Mackay of Ardbrecknish: My Lords, I am happy to tell the noble Lord that we consulted the Department of Health, the Department of Trade and Industry and the Department of the Environment. From recollection, I think that we also consulted the Scottish and Welsh Offices and probably—but I am not sure— the Northern Ireland Office.

  Railtrack: Investment
  3.8 p.m.
  Lord Clinton-Davis Lord Clinton-Davis asked Her Majesty's Government:
  Whether they are satisfied with the investment made by Railtrack in the maintenance and improvement of the rail network since April 1994.
  Viscount Goschen: My Lords, prior to its stock market flotation in May last year, Railtrack operated under the constraints of public funding. Since privatisation the company has increased spending on the rail network. In the first six months of this financial year, over £100 million more was spent on

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  infrastructure investment than in the same period last year. I understand that Railtrack intends to increase that level of spending and will publish a detailed statement of its expenditure plans next month.
  Lord Clinton-Davis: My Lords, does the Minister agree with the regulator, Mr. John Swift, that the underspend on maintenance and investment by Railtrack of £709 million—money which, after all, has been provided by the taxpayer—is totally unacceptable? Further, is it not a fact that that underspend contributes very substantially to the profits that have been declared by Railtrack thus far?
  Viscount Goschen: My Lords, I understand that the regulator has commented on the level of Railtrack's investment this year. It must be remembered that the company has existed in the private sector for only nine months. It has put forward very bold expenditure plans for investment in the rail network and is committed to implementing them. It has not been able so far to put into place the systems to deliver that targeted level of investment. It will publish its report which the regulator will see. The company intends firmly to meets its investment targets. I repeat that in the first six months it has spent £100 million more than in the previous year, which is an increase of about 25 per cent.
  Lord Clark of Kempston: My Lords, does my noble friend agree that an investment by the new company, Railtrack, of over £100 million augers very well for the future, given that further investment by Railtrack will not affect the public sector borrowing requirement and any inhibitions on the PSBR will disappear? Does he agree that criticism of privatisation comes ill from spokesmen opposite in view of the fact that in this country privatisation has been a great success and is copied worldwide?
  Viscount Goschen: My Lords, my noble friend is absolutely right about the success of privatisation, which even the parties opposite acknowledge these days, in stark contrast to their views when these privatisations took place. Railtrack has announced very bold investment plans. Indeed, it intends to invest £8 billion in the network over the next five years. It is working hard to put that investment in place and set up systems that did not exist when Railtrack was in the public sector to ensure that that spend occurs. It will be publishing its detailed plans.
  Lord Cledwyn of Penrhos: My Lords, Railtrack may have spent the sum of money to which the noble Viscount has referred, but it has not been spent in Wales. Is the Minister aware that yesterday I sought to catch the 8.58 train from Holyhead to Euston and the engine broke down and the service was late and uncomfortable? Is he also aware that the Welsh people are very tolerant and patient in these matters but that the situation will be different if he does not do something about this matter?
  Viscount Goschen: My Lords, I have personal experience of the tolerance of Welsh people—and very
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  great it is too. The accusations (if I may so describe them) that the noble Lord makes are addressed to the wrong body. Railtrack is the organisation that owns, maintains and runs the track. It has greatly improved its operational performance since privatisation, and it has invested money. Some of that investment will have taken place in Wales.
  Lord Bridges: My Lords, I should like to ask the Minister a particular question of which he has knowledge. A few weeks ago I wrote to him to ask what plans were being made to improve the performance of the rail connection between the port of Felixstowe and the rest of the country so as to reduce the number of containers and freight consignments travelling by road. I am grateful to him for his reply, which in general is not unsympathetic and points to certain possibilities of which I am aware. However, why does the Minister's letter omit any reference to the broader statements of policy which the Government have made about the need to transfer traffic from road to rail for environmental reasons? A number of important statements have been made on this subject in the past, for example in the significant paper on the subject of sustainable development, but the noble Viscount makes no reference to these aspects of government policy in his reply. Surely, it is wrong to omit any consideration of those matters also. Is the noble Viscount guilty not so much of forgetting Goschen but of Goschen forgetting in this case?
  Viscount Goschen: My Lords, it is very difficult to discuss the text of a letter at the Dispatch Box. I am more than happy to place the correspondence in the Library of the House, if that is the wish of noble Lord. The noble Lord asked me specific questions and I attempted to respond to those questions with direct answers. As luck would have it, I have with me a copy of the letter. My eye is drawn to a section where I describe the freight facilities grant scheme, which is to do with the environmental benefits of transferring freight to the railways or inland waterways. Under that scheme an application for grant for capital facilities can be made to the Government in just the circumstances that the noble Lord describes.
  Lord Marlesford: My Lords, does my noble friend at least admit that in the case of Felixstowe this is a major problem? Our biggest container port is linked with the rest of the rail network by a single track which uses the 19th century token system of signalling. Of the 1 million containers that go to and leave the port of Felixstowe each year by land only 17 per cent, are carried by rail. Does the Minister recognise that that represents a failure over several decades to make adequate provision for part of the transport infrastructure of this country? Are the Government going to do something about it and not just say it is up to Railtrack?
  Viscount Goschen: My Lords, I do not agree with my noble friend that there has been a failure in this direction. I understand that Freightliners, which is the company that is responsible for moving containers on

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  the line to which my noble friend has referred, recently broke the all-time record for the number of containers moved through Felixstowe in a single day. I understand that currently Freightliners operates 18 trains every day and Railtrack believes that there is sufficient capacity for at least two further trains per day. In view of that, I cannot possibly agree with my noble friend. Certainly, in the first instance it is for Railtrack as the owner and operator of the line to decide where its investment priorities lie.
  Lord Clinton-Davis: My Lords, will the Minister answer my initial Question? Does he agree with the strictures of the regulator, Mr. John Swift, that the underspend by Railtrack is totally unacceptable—yes or no?
  Viscount Goschen: My Lords, these are the views of an independent regulator which are directed to an independent commercial company. The Government have put the regulator in place to do exactly that. It is not for me to express an opinion on whether or not I agree with the regulator. He is doing his job, and shortly he will receive the detailed plans of Railtrack as to how it intends to spend these record amounts of money on the railway. This is what we see emerging from privatisation. There is an increased amount of money being put into the railway. This year 25 per cent, more has been spent on the infrastructure than last year. By any standards that is a considerable improvement.

  Business of the House: Debate,15th January
  3.18 p.m.
  The Lord Privy Seal (Viscount Cranborne): My Lords, I beg to move the Motion standing in my name on the Order Paper.
  Moved, That the debate on the Motion in the name of the Lord Williams of Elvel set down for tomorrow shall be limited to five hours.—(Viscount Cranborne.)
  On Question, Motion agreed to.

  House of Lords' Offices: Select Committee Report
  The Chairman of Committees (Lord Boston of Faversham): My Lords, I beg to move that the First Report from the Select Committee on House of Lords Offices be agreed to. In doing so I must apologise to your Lordships for a mistake in the report. In paragraph 3 reference is made to paragraph 7. There is no paragraph 7. The reference should be to paragraph 6. With that correction, I beg to move.
  Moved, That the First Report from the Select Committee be agreed to (HL Paper 24).—(The Chairman of Committees.)
  Following is the report referred to:
  Lord Cocks of Hartcliffe Lord Cocks of Hartcliffe rose to move, as an amendment to the above Motion, at end to insert ("but refers the matter of the Enhanced Message Service (paragraph 3) back to the Select Committee").
  The noble Lord said: My Lords, I beg to move the amendment standing in my name on the Order Paper. I promise not to detain the House for very long. Over the years I have from time to time raised points on Offices reports only to be told that the matter has already been decided in another report. On examining Hansard, I usually find that such reports have gone through on the nod. In the present case, paragraph 3, which deals with the message service, is sufficiently important to use this expedient to draw the matter to your Lordships' attention.
  Over the years I have very much appreciated the service provided by the Doorkeepers and Attendants in delivering messages. I have nothing but admiration for them. Paragraph 3 of the report deals with an enhanced message service. That is not how ordinary people talk to one another. When I saw the phrase "enhanced message service" I thought it had the smell of consultants about it.
  Yesterday I had a meeting with Black Rod. He was, as usual, extremely helpful. He confirmed that the proposal is based upon a consultant's report. Not only did he confirm it; he was kind enough to furnish me with a copy of the report. It weighs 3 lbs. or, I am told, in the new parlance, 1.3 kg. I tried to go through it last night. It is extremely complicated and far reaching, and driven, I believe, by the House of Commons, the Members of which are increasingly becoming professional politicians. The requirements of this House will not always coincide with those of the Commons.
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  All I am asking the Lord Chairman to do is to confirm to the House that we will have further opportunities to consider, as a House, the development of this service before things go too far down the line and we find that it is beyond recall and that the whole atmosphere of the House is being damaged. I beg to move.
  Moved, as an amendment to the above Motion, at end to insert ("but refers the matter of the Enhanced Message Service (paragraph 3) back to the Select Committee").—(Lord Cocks of Hartcliffe.)
  Lord Mackie of Benshie: My Lords, will the Lord Chairman tell us the cost of the report as well as its weight?
  Lord Ashbourne: My Lords, I was saddened by the decision to exclude the Princess of Wales from Prayers in this Chamber. The decision reflects a lack of generosity of spirit which is not usual in your Lordships' House. It involves practically no time and certainly no money. The House should have an opportunity to air its view on that important matter. I should like to see it adjusted now.
  Lord Monkswell: My Lords, we all owe my noble friend Lord Cocks of Hartcliffe a debt of gratitude for introducing this topic. Can the Lord Chairman say that a copy of the report referred to will be placed in the Library so that other Members of your Lordships' House are able to have sight of it?
  The Chairman of Committees: My Lords, with your Lordships' permission, and for the convenience of the House, I can perhaps deal with the various points that have been raised at one time, although, strictly speaking, as your Lordships will be aware, I should be out of order in doing so because strictly we are dealing only with matters arising on the amendment moved by the noble Lord, Lord Cocks of Hartcliffe. I turn to that first.
  The purpose of the proposal is to improve—I prefer, as does the noble Lord, Lord Cocks, a word such as that to the word "enhance"—the service which should be provided to your Lordships and through your Lordships to the country as a whole. I endorse completely what the noble Lord, Lord Cocks, said about the great helpfulness of our Doorkeepers, Attendants and other staff.
  In answer to the principal point raised by the noble Lord, Lord Cocks, I can confirm that there will be a further opportunity for your Lordships to consider these matters. They are in their early stages. There are further detailed plans to be considered. They will be considered, as were the initial proposals, in turn by the Administration and Works Sub-Committee and the Offices Committee of your Lordships' House. Once they have had an opportunity to deal with these matters, they will come again before your Lordships, so there will be ample opportunity further to consider the detailed proposals and to consider whether we want any of them, none of them, or all of them.
  I draw attention to paragraph 3 of the report which refers to consultation with your Lordships. Perhaps I may add to that by saying that there will be a

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  presentation to members of the sub-committee and the Offices Committee on the 28th of this month as part of the preparation for considering the detailed matters further.
  On the point raised by the noble Lord, Lord Mackie, I am afraid that I do not have the cost with me. If I can obtain it, I shall let the noble Lord know outside the Chamber. The noble Lord, Lord Monkswell, asked for a copy of the consultant's report to be placed in the Library of the House. That is a matter which, as already indicated, stems from consideration by another place as well as your Lordships' House. So I am not sure whether I can give a categorical answer at the moment. I shall look into it and let the noble Lord, Lord Monkswell, know. If it is possible to provide a copy in the Library I shall do so.
  With your Lordships' leave, as it does not arise out of this report, let alone the amendment, perhaps I may refer to the point raised by the noble Lord, Lord Ashbourne. The Administration and Works Sub-Committee and the Offices Committee of your Lordships' House gave thorough consideration to the matter that the noble Lord has raised. We had the benefit of submissions from the noble Lord, Lord Stallard, and the noble Baroness, Lady Macleod of Borve, which we greatly appreciated. However, we decided to make no recommendation for any change to your Lordships; hence there is no reference to it in the report.
  Lord Avebury: My Lords, perhaps I may express some concern that the noble Lord was unable to reply to my noble friend Lord Mackie. We should bear in mind that when any Bill appears before your Lordships there is a financial and explanatory memorandum, and we know what the cost is estimated to be by the Government. Now, apparently, the noble Lord cannot tell us how much we have already spent on the consultant's report. From the fact that he did not mention it, I presume that he is unable to give the figure for the cost of the appointment of the project manager, to which we are being asked to agree, let alone the proportion of that cost that is to be borne by your Lordships' House. We should be told that before we agree to the report. After all, the bulk of the messages are received by Members of another place and only a few, relatively speaking, by Members of this House where I find the service perfectly satisfactory.
  No complaint can be made about the excellent service that your Lordships receive from the Attendants and the Doorkeepers. There is no apparent need for any enhancement, let alone improvement, of the service with which we are already provided. So we are being asked
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  to agree to pay part of the salary of a project manager— the amount of which is not specified—for reasons which do not seem to be very strong.
  Lady Saltoun of Abernethy: My Lords, before the Lord Chairman of Committees replies, may I ask him whether ordinary, common Back-Bench Peers will be able to make representations to the project manager?
  The Chairman of Committees: My Lords, with the leave of your Lordships, on the last point, there is no doubt that it will be possible for representations to be made or to be forwarded, and I undertake to do so on behalf of any of your Lordships who wish that to be done. With your Lordships' leave, on the matter raised by the noble Lord, Lord Avebury—I am grateful for the assistance and the details with which I have been provided to enable me to give this answer—no cost arises this year. That is the reason why no cost is mentioned. However, there will be cost implications in due course and an indication of those will be given in Answer to a Written Question which has been tabled by the noble Lord, Lord Cocks of Hartcliffe. I hope that that explanation is in some way helpful. The only other point that I would make in answer to the noble Lord, Lord Avebury, is that, however inadequate, I made an endeavour to give an answer to the question asked by the noble Lord, Lord Mackie.
  Lord Cocks of Hartcliffe: My Lords, I am grateful to the Chairman of Committees for his assurances that the House will be able to oversee the progress of the matter. I beg leave to withdraw the amendment.
  Amendment, by leave, withdrawn.
  On Question, Motion agreed to.

  House of Lords' Offices: Select Committee Report
    1. Appointment of Sub-Committees
    The Committee appointed the following Sub-Committees and Panel-
    1. Appointment of Sub-Committees

      Finance and Staff Sub-Committee
      L. Boston of Faversham (Chairman),
      V. Cranborne,
      B. Gould of Potternewton,
      L. Harris of Greenwich,
      E. Northesk,
      L. Peston,
      L. Renfrew of Kaimsthorn,
      L. Richard,
      L. Rodgers of Quarry Bank,
      B. Seccombe,
      L. Weatherill,
      with the Clerk of the Parliaments.

      Administration and Works Sub-Committee
      V. Allenby of Megiddo,
      L. Boston of Faversham (Chairman),
      E. Gowrie,
      L. Graham of Edmonton,
      L. Harris of Greenwich,
      L. McColl of Dulwich,
      L. Peston,
      L. Renfrew of Kaimsthorn,
      B. Serota,
      L. Strathclyde,
      V. Tenby,
      L. Weatherill,
      with the Clerk of the Parliaments and the Gentleman Usher of the Black Rod.

      Library and Computers Sub-Committee
      L. Brougham and Vaux,
      L. Freyberg,
      L. Holderness,
      B. Lockwood,
      L. Lucas,
      L. McIntosh of Haringey,
      L. Mustill,
      B. Nicol,
      L. Renfrew of Kaimsthorn (Chairman),
      L. St. John of Bletso,
      with the Clerk of the Parliaments.

      Refreshment Sub-Committee
      E. Arran,
      L. Chesham,
      L. Colwyn,
      B. David,
      L. Graham of Edmonton,
      L. Harris of Greenwich,
      L. Howell,
      L. Lawrence,
      L. Mackie of Benshie,
      L. Palmer,
      L. Peston (Chairman),
      with the Clerk of the Parliaments.

      Advisory Panel on Works of Art
      L. Armstrong of Ilminster,
      L. Chorley,
      L. Crathorne,
      L. Donoughue,
      V. Falkland,
      E. Gowrie (Chairman),
      B. Hilton of Eggardon,
      L. Hindlip,
      L. Palmer,
      B. Trumpington,
      with the Clerk of the Parliaments.

    2. Smoking in the Writing Room
    The Committee considered a request to redesignate the Writing Room as a non-smoking room. The Committee decided that no changes should be made at present, but agreed that the House's policy on smoking should be, in the longer term, to reduce the number of smoking areas relative to non-smoking areas.
    3. Enhanced Message Service
    The Committee approved outline proposals for an enhanced message service within the parliamentary estate. A Project Manager will be appointed (see paragraph 7 below) to oversee the introduction, after full consultation with members and relevant committees of both Houses, of a new service which will offer a variety of systems for taking and passing on messages, to supplement the present system provided by the Attendants and Doorkeepers.
    4. Yeoman Usher's apartment
    The Committee was informed that the Yeoman Usher's accommodation in the House of Lords was being converted to offices for peers; it approved the purchase of alternative accommodation outside the Palace of Westminster.
    5. Salaries of the Chairman and Principal Deputy Chairman of Committees
    The Committee approved revised salaries for the Chairman and Deputy Chairman of Committees with effect from 24th July 1996.
    6. Staff of the House
    The Committee took note of the appointment of Dr. D.A. Rolt as a Temporary Clerk, and of the proposed appointment of two additional waiting staff in the Refreshment Department. The Committee agreed the appointment of a Project Manager of the proposed message service, on a shared basis with the House of Commons.

Welfare of Broiler Chickens Bill [H.L.]
3.30 p.m.
Report received.

Social Security (Recovery of Benefits) Bill [H.L.]
3.31 p.m.
Report received.
Clause 2 [Compensation payments to which this Act applies]:
Earl Russell Earl Russell moved Amendment No. 1:
Page 2, line 5, at end insert ("which satisfies the provisions of section 12(3) of this Act").
The noble Earl said: My Lords, I shall speak also to Amendments Nos. 10 and 11, which are grouped with Amendment No. 1 and cover related matters.
We discussed the matter at some length in Committee. Since then I have been attempting to obtain legal advice from a number of quarters. Some of it has reached me within the past hour and some within the past 15 minutes. As I might have expected, I find that

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the legal advice has led me to the view that the matter is a great deal more complicated than any of us conceived at the last stage of the Bill. In the light of that fact, I wish to begin by asking the Minister to explain the words upon which the amendment purchases in Clause 12(3). It provides that the medical appeal tribunal:
"must take into account any decision of a court relating to the same, or any similar, issue".
It is those words which created a certain anxiety in my mind and that of the noble Baroness, Lady Hollis, about whether the provision might belong to the same legal family as clauses which appear in other statutes excluding the jurisdiction of the courts.
Obviously, with a medical appeal tribunal the matter is slightly more complex. That is why I wish to begin by asking the Minister to explain the words "take into account". What is the legal meaning of those words? Have they been used in previous legislation? Is there any judicial authority on how they are construed? Are they words as weak as the proverbial "have regard to" in a statute, which means that one can look at something and then ignore it totally, or must the words be given considerable weight?
I turn to the issue of "issue estoppel", of which I believe none of us was aware when we debated the matter in Committee. Issue estoppel is a common law principle under which if a particular issue has been determined in other proceedings it cannot be reviewed again. I apologise for not having given the Minister notice, but I wish to ask him questions which 15 minutes ago I was not aware I intended to ask. How has the issue of issue estoppel normally been treated in the past in proceedings in medical appeal tribunals? Was it past practice that there was an area of specialist medical expertise in which that doctrine was not applied rigorously? Is the practice of issue estoppel to be changed by operation of the Bill, or will it remain exactly as it was previously?
Perhaps I may assist the Minister by pointing out that issue estoppel is the principle which says that although one can try a case one cannot try a particular issue which arises in the case because it has been tried previously. Therefore, some issues which arise in a case may be tried but a particular issue may not. It is, of course, an issue which arises regularly at medical appeal tribunals. The tribunals may look at the medical evidence without wanting to open up the legal issues behind it on which they are inevitably likely to be somewhat less competent than the courts.
Your Lordships will see that this clause takes us into rather difficult and treacherous waters. That means it is of considerable importance to know exactly what is being attempted. If the clause were to restrict further the jurisdiction of the courts I am sure that the Minister will understand why I view it with misgivings. If, in fact, it were not to change matters very much that might be altogether another matter.
With those preliminary observations, and with apologies for having thrown a lot of spanners which have just been thrown at me, I beg to move.
Baroness Hollis of Heigham: My Lords, I rise to support Amendments Nos. 1 and 10 and to speak to Amendment No. 11. We are trying to ensure that the medical appeal tribunal is bound by the finding of the court on the same issue and should take into account the decisions of the court on a similar issue. It matters because without such an amendment two courts—that is, one court and one quasi court—could arrive at different decisions on the same issue. We are trying to ensure that they reach the same decision.
As we said in Committee, a typical case might involve a pre-existing condition, such as a back condition. As the Bill stands the court, which will make the preliminary decision, may well have the experience and guidance of consultants. However, the medical appeal tribunal may be guided only by its doctors, who could be local GPs. Yet the medical appeal tribunal could effectively overrule the court on the basis of weaker and less expert professional judgment. The amendment would stop that happening. I support the noble Earl in saying that, so far as we are aware, there is no other area of law where the decision of one court or surrogate court is not binding on another after findings of fact on the same issue.
We tabled the amendment in Committee when the Minister said that he rejected it because he wanted the option of the medical appeal tribunal being able to arrive at a different decision, not for reasons of equity, justice or consistency but so that the department could recover benefits which the court would not otherwise have allowed it to recover. We thought that that was a statement of very doubtful public probity. When the Minister voiced the argument, we, and I suspect the Minister, were not convinced of its rectitude. Therefore, we have brought the amendment back, first, because, substantively, we believe that the medical appeal tribunal and the courts should respond to the same issue in the same way in order that claimants know where they stand; and, secondly, because in Committee the Minister gave as his reason for rejecting it not grounds of equity, justice or the law but simply that he would have more weapons which the courts of the land would not otherwise have given him with which to recover benefit.
Lord Mackay of Ardbrecknish: My Lords, the amendment deals with Clause 2, but, as I suspected, it has been tabled simply in order to bring Amendments Nos. 10 and 11 into our proceedings earlier than might otherwise have been the case. I do not believe that there is any serious intention to change Clause 2. Just in case there is any such intention, I should say a few words about the effect of Amendment No. 1. Clause 2 of the Bill provides for the compensation payments to which the reformed recovery scheme will apply. The intention is that the provisions of the Bill should apply to all compensation payments made on or after the date that the new scheme comes into force. The exception to that rule will be payments made in pursuance of a court

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order or agreement made before the date of coming into force. That exception will allow settlement to take place under the terms of the present scheme up until the date that the reformed scheme comes into force.
Amendment No. 1 appears to be an attempt to limit the exceptions that are made to this clause; that is, to limit the types of case which may settle under the terms of the present scheme. The wording of the amendment suggests that the exceptions should only be payments made in pursuance of court orders or agreements made before that day which satisfy the provisions of Section 12(3) of the Act.
I would have found this amendment extremely puzzling had it not dawned on me quite quickly that it was simply a device to ensure that the major issue is debated rather earlier in our proceedings for some reason which, despite burning the midnight oil, I could not for the life of me work out. But it is a puzzling amendment. Clause 12(3) of the Bill relates to the decision-making process for tribunals. It makes it clear that they must take into account any decision of a court relating to the same and similar issues arising in connection with the accident, injury or disease. It does not set out any provisions which court orders or agreements must satisfy. Further, it is in any case difficult to see how any orders made before the date of implementation could possibly satisfy any provisions contained in Clause 12, which will not come into effect until the implementation date. That might mean that no exceptions could be made, even where both victim and compensator had agreed to settle under the terms of the present scheme. I do not believe that that was the noble Earl's intention in putting forward this amendment. I believe that his purpose was to draw into our earlier proceedings Amendments Nos. 10 and 11.
I shall now deal with those amendments. The purpose of Amendment No. 10 is to bind an appeal tribunal to a decision of a court where that decision relates to the same question in respect of the accident, injury or disease. On the face of it, it appears that a lower authority would have the right to reach a decision different from that made by a higher authority. The noble Earl and the noble Baroness wish to tie a tribunal entirely and completely to the decision made in the other court.
Baroness Hollis of Heigham: My Lords, only in the same case should it be taken into account or where it is a similar case.
Lord Mackay of Ardbrecknish: My Lords, I believe that the noble Baroness really means "issue" rather than "case"—the same or similar issues. The noble Baroness's amendment introduces "similar issues", whereas the noble Earl's amendment deals only with "same issues". I shall deal with both of those in turn.
I listened carefully, as I always do, to the debate in Committee. I considered very carefully what had been said. I discussed those matters with my officials and legal advisers and I discovered, as the noble Earl has
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done, that this is perhaps a rather more complex business than we all considered or thought in Committee.
The noble Earl has raised with me the question of estoppel and how that affects the Bill as it stands. The estoppel principle does not apply because of another legal principle. That other legal principle, which in my halting Latin I shall attempt to explain to your Lordships, is that of res inter alios acta alteri nocere non debet, which is usually abbreviated to res inter alios acta. One or two of your Lordships may require a translation and I am happy to try to explain what it means. It can be translated as: a matter carried out between others ought not to harm another person. It means that a person who was not a party to earlier legal proceedings and therefore did not have the opportunity to give his own evidence or to cross-examine witnesses should not be bound by the decision of the court in later proceedings to which he is a party.
I have attempted to put it more simply and more mathematically by saying that, if a case takes place between A and B, the decisions in that case cannot bind a case between A and C or B and C. In this case, A and B are the victim and the compensator and C the Secretary of State. Therefore, it follows that if an appeal tribunal were bound to follow the decision of the court, the res inter alios acta principle would be compromised. The Secretary of State would not have been heard by the court and any evidence he presented to the appeal tribunal could not affect the decision taken by the court. This means that the Secretary of State would be denied the opportunity to comment on matters of direct interest both to him and to the taxpayer.
The Secretary of State cannot join in proceedings between plaintiff and defendant and it would not be appropriate to change the law to allow him to do so because, quite rightly, the benefit recovery process is not invoked until liability has been established and compensation awarded. If the Secretary of State were given the right to be heard, the department and the court would be embarking on a course of action which could later prove pointless if negligence was not proved. Furthermore, additional costs would have been incurred to no good effect.
I should re-emphasise that Clause 12 of the Bill as drafted does not provide a licence for appeal tribunals to ignore decisions of the courts. Subsection (3) provides that the tribunal must take into account any such decision which relates to the same or any similar issue arising in connection with the accident, injury or disease. If the tribunal does decide in favour of the Secretary of State, it will have to justify that decision. Furthermore, as I made clear in Committee when discussing a similar amendment, it is also important to remember that the decision of a medical appeal tribunal can be the subject of an appeal to a social security commissioner, with leave and on a point of law. If the appeal tribunal has reached a decision which could be seen as novel or unusual, it is entirely possible that leave would be granted. I should add that if the appeal tribunal were to refuse leave, it may be sought direct from the commissioner.

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The noble Earl asked me about the words "must take into account", which is the phrase in the Bill. That phrase means simply that the tribunals must evaluate evidence and they must give it due weight. As I have explained, if it is felt that they have not done so, there are procedures in place for appeals against that.
The noble Baroness, Lady Hollis, suggested that the evidence to the tribunal may be weaker than the evidence to the previous court. If that evidence were weaker, as I have said and as the Bill provides, the tribunal must take into account what was decided by the other court. Frankly, one would therefore expect the tribunal to give the appropriate weight to the heavier evidence; that is, the evidence given at the other court. That is the position and I hope that I have answered the points raised about the word "must".
I have explained also why it would be undesirable for a medical appeal tribunal to be bound by the decision of a court on the same issue. The effect of Amendment No. 11 would be to go further and bind a medical appeal tribunal not just to the same decision but to a similar issue as well.
Amendment No. 11 would increase the number of cases going before an appeal tribunal in which the Secretary of State's evidence would have no effect on matters of direct interest to him. Furthermore, in rendering ineffective the Secretary of State's evidence in cases similar to that decided by the court, it could also generate considerable argument over whether the issue in question was similar to that decided by the court or not. One might have two different sets of argument. I believe that that would prove a fertile ground for disputes and increase the number of benefit recovery decisions reaching a commissioner. I believe that continuing the existing arrangements in this area is the right approach. The arrangements strike the right balance. Fewer than 100 recovery of benefit appeals are heard in any given year. Many of them are indeed complex cases and frequently involve court decisions.
A typical situation where the appeal tribunal will differ from the courts is one in which compensation has been awarded on the basis that the court decided that the effect of a particular injury should no longer exist after a certain length of time but where the victim, nevertheless, continues to claim benefit in respect of such effects for some time beyond that date. In such a situation the tribunal may decide that the period during which recoverable benefits have been paid is as specified in the certificate from the Secretary of State and not the period for which compensation has been awarded.
As I indicated, not many cases are involved but they are often complex and unusual. However, they do involve this important legal principle which I am advised takes the lead—I am not sure whether "precedent" is the right word; indeed, I am always cautious when I start using semi-legal phraseology— over the principle which the noble Earl posed to me. As I explained, that principle is that if, in the case of this particular issue, the plaintiff and the defendant are in court, the Secretary of State is not there, has no right to be there and no locus.
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However, if a decision is reached at that point and it is subsequently decided to go to an appeal tribunal regarding what is on the certificate, then, in that case, the Secretary of State is a party and it would be the Secretary of State and "A" or the Secretary of State and "B" who would be involved. That is the point of the legal principle which says that that case, which is not the same as the original one because it is not between the same two parties, does not have to take into account or have to abide by the decisions of the other court. With that explanation of what I accept is a legal point, I hope that your Lordships will see the justice of my cause and that the amendment will be withdrawn.
Lord McCarthy: My Lords, before the Minister sits down I would like to raise one further point. The noble Lord introduced the principle of what I might call "third party immunity". However, if I follow the Minister correctly, all the examples put forward have been drawn from this field. My noble friend Lady Hollis asked the Minister whether he could give other examples. Surely such a principle ought to be operating in tax law, in health and safety matters, and so on. If that is the case, can the Minister give further examples?
Lord Mackay of Ardbrecknish: My Lords, it does operate. Indeed, I discussed a similar matter with my officials this morning. As I said, I am always reluctant to get too closely involved in such cases. However, we discussed an interesting criminal case in which the Crown could prosecute and where, perhaps, the case does not go any further or where a not guilty verdict is reached but where the person involved could then sue the person who was the accused. That could actually become a civil case where another decision could be made.
There is another similar case, the details of which I do not have with me. It took place in the late 1940s and was subsequently superseded by a change in statute law to allow for a different circumstance to apply. However, I can assure the noble Lord, Lord McCarthy, that the maxim of res inter alios acta is one of very great duration. It appears in both Roman and canon law and was indeed invoked in common law as early as the reign of Edward II. It prevails to this day as an important point of principle. The noble Baroness may laugh at that if she wishes, but, as I understand it, the importance of English common law is that it does have a very long and distinguished history. We must therefore be careful before we turn it over. However, the Secretary of State, who has some interest as, indeed, does the taxpayer, in such issues, is not a party to the original decision between the defendant and the plaintiff. Therefore, as I said, he has no locus to be there and I do not believe that either I or your Lordships would want him to be there because it would complicate the issue. This could be a subsequent decision which may be made in a dispute between one of the parties and the Secretary of State. In that case, this common law principle is the one which I believe we should abide by.
Earl Russell: My Lords, I must apologise to the Minister for the quality of my paving. I regret to say

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that it is the sort of paving that I have come to find familiar since the period of Conservative Government began. It is the usual principle: there is no such thing as a free tax cut. But paving it is, however crazed it may be; and, as paving, the Minister justly recognised it.
I thank the Minister for a particularly lucid exposition of an extremely complex problem. Whether or not it is a complete exposition is a question which I believe is worthy of further thought. The principle of res inter alios acta is of course vital. It links with the principle that one may not have a judgment against one when unheard. The two principles are in fact logically connected, but I do not believe that the application of that principle is quite as simple as the Minister suggested.
We are dealing here with a medical appeal tribunal. The Minister is right to say that in the previous damages case, with which we are dealing as regards the recovery of benefit, the Secretary of State will not have been a party. So the Secretary of State may benefit from the principle of res inter alios acta. That is exactly as the Minister expounded it, and I go with him all the way in that respect. But, in a case before the medical appeal tribunal, we have an issue between the claimant and the Secretary of State to which the compensator is not a party, even though the amount of damages that the compensator may have to pay to cover recoupment of benefit may be very materially altered by the finding of that tribunal. Therefore, after the conclusion of the medical appeal tribunal, will not the compensator be able to claim the principle of res inter alios acta and take the matter on a stage further? Has not the Minister set up a merry-go-round from which there is no coming off?
Lord Mackay of Ardbrecknish: My Lords, perhaps I may interrupt in order to assist the noble Earl. The compensator can in fact be a party to the appeal.
Earl Russell: My Lords, I hoped that I would hear that answer; indeed, I am very glad that I have. I thank the Minister warmly. However, there are one or two other related problems. In criminal and civil cases different standards of proof apply. Where there is a criminal injury involved that may be relevant and it might lead to different verdicts. Where we have a court judgment that someone is entitled to benefit because of an injury over a certain period of time and the person remains unfit to work, that person is still entitled to benefit if he is physically unfit to work even if that is no longer ruled to be the consequence of the accident. If one is injured and the injury is then capped by the effect of ageing, one may remain unfit. I am sure that the Minister has not forgotten all the debate about hearing and war pensions which is the same principle. So there is a further complication involved. I am not satisfied that we have got it right, but we may do better with it outside the Chamber than within it. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
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Clause 3 ["The relevant period"]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 2:
Page 2, line 11, at end insert ("or the disease in question was first diagnosed").
The noble Baroness said: My Lords, in moving the amendment I shall speak also to Amendment No. 3. As the Bill stands, the rules governing the recoupment of benefit if one suffers from injury are treated differently from those regarding people who are suffering from a disease. In Committee we tried to persuade the Minister that, so far as concerns benefit recoupment, disease and injury should be treated in the same way; in other words, from when the disease was first diagnosed or the injury occurred and not from when the first claim was made on benefit.
Although I believe that the Minister raised an eyebrow at the time, we argued in Committee that it was not difficult to treat disease in that way because the GP's initial diagnosis is a perfectly sensible method of dating from when the clock begins to tick. The Government did not accept our amendment, although the Minister was kind enough to follow it up with an explanatory letter. However, I have to say that the Minister's efforts of explanation persuaded neither our advisers nor myself. Indeed, I suspect that they may not have entirely persuaded the Minister. So we now revisit the topic.
The heart of the issue is that the Government are drawing a distinction between disease and injury which the more one examines it the less clear it becomes. On Second Reading, the noble Earl, Lord Russell, asked whether radiation poisoning was a disease or an injury because the heading under which it falls affects how one's benefit recoupment comes into play.
At Committee stage I talked about gluteraldhyde, a sterilising chemical, exposure to which can cause severe asthma type disease. We have considered this matter further and discovered a whole array of other such incidents. We would like the Minister to give us a steer as to whether these count as diseases or injuries. For example, there is a whole array of diseases which can be caused by a one-off exposure to a hazard, or a short series of distinct exposures to hazards. In the case of HIV or hepatitis A and B, these blood-borne diseases can be caught from a one-off exposure. Particularly at risk are those involved in the medical profession, for example a nurse or a dentist. Is that a disease or an injury?
Weil's disease can be contracted by a single exposure to contaminated water. At risk are those in the water industry, including sewerage workers, as the disease is spread by rats. Is that a disease or an injury? Dermatitis can be caused by exposure to a variety of sensitising agents. It can certainly be caused by working with certain oils in machinery after a short time. Is that a disease or an injury?
The psychiatric illness of post-traumatic stress disorder by definition can be caused only by a "trigger" event, a one-off psychologically damaging experience such as, alas, the King's Cross fire, the Zeebrugge ferry disaster, or the Hillsborough football disaster. Is that a disease or an injury?
Platinum allergy can be suffered by workers in the precious metal industry. A one-off exposure can cause lifetime sensitisation to platinum. Is that a disease or an injury? In the agricultural industry, one bite from a sheep tick can cause permanent illness. Legionnaire's disease can be contracted from infected water, or from airborne bacteria in faulty air conditioning. Recently in this House we have had many discussions on organo-phosphate poisoning and the effect it has had on our troops, possibly as a result of a one-off exposure. The consequence was a disease.
No doubt we could go on and on, but I hope that I have produced enough evidence to show that the distinction the Minister seeks to draw in the law between disease and injury does not in practice hold for a large swathe of cases which will come within the framework of this Bill. It would, therefore, be fairer to administer, as well as fairer for the claimant, if disease and injury were treated in the same way; that is, when the disease is first diagnosed the clock begins to tick in much the same way as when an injury first occurs. I beg to move.
Earl Russell: My Lords, the noble Baroness has said almost everything I intended to say. I shall not gild her lily. I shall merely ask the Minister whether the Government introduced this clause as a form of subsidy to the legal profession.
4 p.m.
Lord Mackay of Ardbrecknish: My Lords, I am not sure whether I shall attempt to answer the noble Earl's point. I sometimes think that all the laws we pass in this House, good, bad or indifferent, have as their underlying raison d'être that they will act as a benefit to the legal profession. I very much doubt whether this one will be any different from all the others. However, on a more serious note, Clause 3 defines the period during which benefits, paid in consequence of an accident, injury or disease for which compensation is claimed, may be recovered.
Subsection (2) of the clause provides for the relevant period in cases of accident or injury, and subsection (3) provides for the relevant period in cases of disease. In cases of disease, unless a settlement is reached beforehand, the relevant period ends five years after the day on which the claimant first claims a listed benefit in consequence of the disease. In accident cases, the period runs from the day of the accident. In virtually all accident cases the benefit will run from the date of the accident, for obvious reasons.
We discussed amendments very similar to those now proposed at Committee stage. These amendments would change the relevant period in disease cases so that—as the noble Baroness explained—it would be counted not from the date of claim but from the date of diagnosis of the disease. A series of arguments has been put forward in Committee and again today in favour of amending the scheme in this way. I remain unconvinced by those arguments. I hope I have explained to your Lordships why that is so.
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First, there is the argument that it can be difficult to distinguish in certain cases between what is an accident and what is a disease. The noble Baroness gave a number of examples. She referred, for example, to cases of exposure to toxic chemicals. I believe she over-estimated the number of incidents as she became carried away with the different kinds of examples she thought up. I am sure that even the noble Baroness would appreciate that the cases she listed form a small portion of the total number of claims. I accept that there may be some occasions when it is difficult to decide whether certain cases constitute accidents or diseases, but they are rare. The argument of the noble Baroness is that recovery in accident and disease cases should be treated in as equitable a way as possible, so that the difficulty of distinguishing between accidents and diseases should not adversely affect the amount of benefits recovered to the detriment of the victim. I do not dispute that either. However, I believe that we already have such an equitable arrangement in place, and that the changes proposed in these amendments to the period of recovery would worsen the position rather than improve it.
If the noble Baroness did not agree that the position we have outlined in the Bill is equitable, and the Opposition were interested in equity, they would propose an amendment that in both accident and disease cases the period of recovery should run from the first date of claim for benefit; in other words, tie in the position for accidents with that for diseases. That would be equitable. However, the Opposition have not chosen to do that.
Under the definitions used in the present scheme for both accident and disease cases, the benefits recovered are only those claimed in consequence of the same injury for which compensation is also claimed. That is something we must bear in mind. Perhaps I should have mentioned it in the previous discussion. The medical tribunal could only consider benefits claimed as a consequence of the accident or disease. However, in the majority of cases, compensation will be payable for the same period in which benefits have been paid. The definitions for the period of recovery the department uses are an attempt to capture only the benefits which may overlap with compensation. We have absolutely no intention of going any further than that. Using the date of diagnosis could produce inequities whether the diagnosis takes place before or after the date of claim for a recoverable benefit.
If the date of diagnosis was used to determine the relevant period in disease cases it would result in the following effect. Consider two cases where benefit was still in payment after five years. In a case where the date of diagnosis preceded the date of claim, the relevant period for recovery of benefits would include a period during which no benefit had been paid at all. This would produce disparity of treatment with an accident case where the claim for benefit will ordinarily have been made very soon after the accident occurred. In such cases the relevant period would not end until benefits had been in payment for a full five years. This disparity does not exist under the current scheme, nor will it exist under the scheme I propose.
On the other hand, in cases where the date of diagnosis took place after the date of claim for a relevant benefit, double compensation would result. This is because the

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department would not be able to recover benefits paid for a period for which compensation would normally have been claimed. The Select Committee made it clear that the prevention of double compensation is the reason for the existence of the policy of benefit recovery.
As your Lordships know, the central premise of the reformed scheme is that compensation may only be reduced on account of benefits paid in respect of the same need. Therefore benefit recovery should not result in anything more than the prevention of double compensation. I believe that the amendment would infringe that basic principle of the scheme.
Those principles apply equally to both accident and disease cases. I do not see that changing the definition for the period of recovery in disease cases could do anything other than create a gap between the treatment of accident and disease cases—preventing double compensation in the first case and allowing double compensation in the latter. I therefore believe that the amendments should be rejected.
Baroness Hollis of Heigham: My Lords, I am disappointed by the Minister's reply. I accept that most of the cases that will be considered for recoupment of benefit are likely to be disease cases and that, therefore, the overlap is a small proportion. However, it is a quite significant and substantial proportion of the injury cases. The Minister has not addressed the issue as to what happens when one is dealing with some of the examples that I gave—I referred to HIV cases, and so on—where, because it is difficult to label them as either disease or injury, the appropriate method of recoupment involved is unclear. Does the Minister wish to help us? What guidance will his department give to, say, medical appeal tribunal doctors?
Lord Mackay of Ardbrecknish: My Lords, this is Report stage. With the leave of your Lordships I shall respond briefly to the noble Baroness. As I think I have indicated on a number of occasions, it is difficult on the Floor of the House in theoretical cases to try to put oneself in the position of the people who will have to decide these issues—the compensator, the plaintiff and perhaps ultimately the courts. It is quite hard, and wrong, for Ministers at the Dispatch Box to make judgment on these issues. They are matters for the parties involved and ultimately the courts.
Baroness Hollis of Heigham: My Lords, if that is not a fudge, I do not know what is. The Minister says that he does not know and he will get rid of the issues by calling them theoretical. They are not. I cited to the Minister well testified test cases many of which are familiar to noble Lords from their own experiences. Those cases do not fall tidily into the category of injury or disease on which the Minister's case rests.
The Minister has set up a parallel path system. What happens to those clusters of examples—I gave a quite substantial number of injury cases—which do not fall tidily into either category and therefore confound his parallel path? What will happen to people in those cases? I imagine that lawyers will try
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to argue that it is either a disease or an injury according to whichever produces the most advantageous situation as regards benefit compensation recovery. That seems to me an undesirable position in which to leave the law. I believe that the Minister wishes again to intervene.
Lord Mackay of Ardbrecknish: My Lords, I believe that the noble Baroness pursues a total red herring which her amendments do not address. The question as to whether it is an injury or a disease is unanswered by her amendment also, if she states that it is unanswered by the Bill. There is no definition. She attempts to put, as she believes, some equity between the two. I have suggested to your Lordships, I believe successfully, that the noble Baroness would be putting inequity between the two. If she really wants equity between the two, she will run both from the date at which benefit starts. That would put equity between the two and would make the situation perfectly clear.
I believe that we have a reasonably equitable position. The questions posed by the noble Baroness are not addressed in her amendments.
Baroness Hollis of Heigham: My Lords, my amendments do not seek to make a distinction between disease and injury. If the amendments are accepted, there is no need to make that distinction between an injury and a disease because they will be treated in the same way. That is what I seek. If the Minister persists in seeking to make a distinction between injury and disease he has to answer my question: how does he label those categories? If he accepts my amendment, he does not have to go down that perilous path because injury and disease will be treated in the same way.
The Minister responds by asking why we do not date them both from the same date. The Minister wishes to intervene again.
Lord Mackay of Ardbrecknish: My Lords, the noble Baroness tempts me into a Committee stage, as she does frequently. If she does not want that, I shall resist doing so for the remainder of the day. Perhaps I may say this to her again at the risk of repeating the arguments. She is making a more significant difference. I believe that what I am doing is equitable. The key point is when the benefit starts. In injury cases the benefits will by and large start when the injury occurs or shortly thereafter. Disease can be diagnosed years before or indeed after benefit starts. In both cases the noble Baroness's amendment would be inequitable because either no compensation would be recovered or there would be a double compensation payment. Neither would be fair and equitable. If the noble Baroness wishes to pursue her argument, the only fair and equitable provision is for both to start on benefit being paid.
Baroness Hollis of Heigham: My Lords, I am unpersuaded by the Minister's reply. I wish to test the opinion of the House.
4.15 p.m.
On Question, Whether the said amendment (No. 2) shall be agreed to?
Their Lordships divided: Contents, 90; Not-Contents, 147.

Division No. 1

CONTENTS

Acton, L.

McIntosh of Haringey, L.

Addington, L.

Mackie of Benshie, L.

Allen of Abbeydale, L.

McNair, L.

Archer of Sandwell, L.

McNally, L.

Ashley of Stoke, L.

Mar and Kellie, E.

Beaumont of Whitley, L.

Marsh, L.

Borrie, L.

Mason of Bamsley, L.

Brooks of Tremorfa, L.

Merlyn-Rees, L.

Bruce of Donington, L.

Meston, L.

Callaghan of Cardiff, L.

Milner of Leeds, L.

Carmichael of Kelvingrove, L.

Monkswell, L.

Carter, L.

Morris of Castle Morris, L.

Cocks of Hartcliffe, L.

Murray of Epping Forest, L.

Craig of Radley, L.

Nicol, B.

Currie of Marylebone, L.

Peston, L.

David, B.

Plant of Highfield, L.

Dean of Thornton-le-Fylde, B.

Ramsay of Cartvale, B.

Desai, L.

Redesdale, L.

Donoughue, L.

Richard, L.

Dormand of Easington, L.

Rochester, L.

Dubs, L.

Russell, E. [Teller.]

Ezra, L.

Sainsbury, L.

Falkland, V.

Serota, B.

Farrington of Ribbleton, B.

Sewel, L.

Gallacher, L.

Simon, V.

Geraint, L.

Smith of Gilmorehill, B.

Gladwin of Clee, L.

Stallard, L.

Glenamara, L.

Stoddart of Swindon, L.

Graham of Edmonton, L. [Teller.]

Strabolgi, L.

Harris of Greenwich, L.

Symons of Vemham Dean, B.

Haskel, L.

Taveme, L.

Henderson of Brompton, L.

Taylor of Blackburn, L.

Hilton of Eggardon, B.

Taylor of Gryfe, L.

Hollis of Heigham, B.

Thomas of Walliswood, B.

Hooson, L.

Thomson of Monifieth, L.

Howie of Troon, L.

Thurso, V.

Hughes, L.

Tope, L.

Jay of Paddington, B.

Tordoff, L.

Jeger, B.

Turner of Camden, B.

Jenkins of Hillhead, L.

Wamock, B.

Jenkins of Putney, L.

Whitty, L.

Kilbracken, L.

Wigoder,L.

Kirkhill, L.

Williams of Elvel, L.

Lovell-Davis, L.

Williams of Mostyn, L.

McCarthy, L.

Winston, L.

NOT-CONTENTS

Addison, V.

Cadman, L.

Ailsa, M.

Campbell of Alloway, L.

Aldington, L.

Campbell of Croy, L.

Alexander of Tunis, E.

Camegy of Lour, B.

Allenby of Megiddo, V.

Chalker of Wallasey, B.

Anelay of St. Johns, B.

Charteris of Amisfield, L.

Arran, E.

Chesham, L. [Teller.]

Ashboume, L.

Chorley, L.

Astor of Hever, L.

Clanwilliam, E.

Belhaven and Stenton, L.

Clark of Kempston, L.

Berners, B.

Cochrane of Cults, L.

Blatch, B.

Courtown, E.

Boyd-Carpenter, L.

Cranbome, V. [Lord Privy Seal.]

Brabazon of Tara, L.

Crickhowell, L.

Braine of Wheatley, L.

Cuckney, L.

Brookeborough, V.

Cumberlege, B.

Bruntisfield, L.

Davidson, V.

Butterworth, L.

Dean of Harptree, L.

Byford, B.

Denbigh, E.

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Denham, L.

Monk Bretton, L.

Denman, L.

Montgomery of Alamein, V.

Dixon-Smith, L.

Munster, E.

Donegall, M.

Murton of Lindisfame, L.

Downshire, M.

Nelson, E.

Elles, B.

Noel-Buxton, L.

Elliott of Morpeth, L.

Northesk, E.

Elton, L.

Orkney, E.

Eme, E.

Orr-Ewing, L.

Exmouth, V.

Oxfuird, V.

Ferrers, E.

Park of Monmouth, B.

Flather, B.

Pearson of Rannoch, L.

Fraser of Carmyllie, L.

Pender, L.

Gainford, L.

Perry of Southwark, B.

Geddes, L.

Pilkington of Oxenford, L.

Glentoran, L.

Platt of Writtle, B.

Goschen, V.

Pym, L.

Gray of Contin, L.

Quinton, L.

Greenway, L.

Rawlinson of Ewell, L.

Harding of Petherton, L.

Reay, L.

Harlech, L.

Renfrew of Kaimsthorn, L.

Harmar-Nicholls, L.

Renton, L.

Harris of Peckham, L.

Romney, E.

Hayhoe, L.

Rotherwick, L.

Henley, L.

St. Davids, V.

Holderness, L.

St. John of Fawsley, L.

Home, E.

Saltoun of Abemethy, Ly.

Hothfield, L.

Sanderson of Bowden, L.

Howe, E.

Sandford, L.

Ilchester, E.

Seccombe, B.

IlChester, E.

Sharples, B.

Inchyra, L.

Shaw ofNorthstead, L.

Inglewood, L.

Shrewsbury, E.

Ironside, L.

Simon of Glaisdale, L.

Johnston of Rockport, L.

Skelmeredale, L.

Kimball, L.

Soulsby of Swaffham Prior, L.

Kintore, E.

Spens, L.

Knollys, V.

Stanley of Alderley, L.

Lane of Horsell, L.

Stodart of Leaston, L.

Lauderdale, E.

Strange, B.

Leigh, L.

Strathcarron, L.

Luidsay, E.

Strathclyde, L. [Telle r.]

Liverpool, E.

Sudeley, L.

Long, V.

Swansea, L.

Lucas, L.

Swinfen, L.

Luke, L.

Taylor of Warwick, L.

Lyell, L.

Teviot, L.

McConnell, L.

Thomas of Gwydir, L.

Mackay of Ardbrecknish, L.

Trefgame, L.

Mackay of Drumadoon, L.

Trumpington, B.

Malmesbury, E.

Vivian, L.

Marlesford, L.

Wade of Chorlton, L.

Mersey, V.

Wilcox, B.

Miller of Hendon, B.

Wilson of Tillyom, L.

Milverton, L.

Wise, L.

On Question, Motion agreed to.

4.25 p.m.
[Amendment No. 3 not moved.]
Clause 4 [Applications for certificates of recoverable benefits]:
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment
No. 4:
Page 2, line 39, at end insert—
("() The compensator may apply for fresh certificates from time to time.").
The noble Lord said: My Lords, in moving this amendment, perhaps I may also speak to Amendment No. 5. Clause 4 relates to applications for and the issue of certificates of recoverable benefit. Amendments Nos. 4 and 5 will change the wording of subsection (5) of Clause 4 to remove any doubts surrounding the

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Secretary of State's obligation to issue a certificate on request. Amendment No. 4 inserts a new subsection into Clause 4 to make it clear that,
"The compensator may apply for fresh certificates from time to time".
Amendment No. 5 removes from subsection (5) the statement that the Secretary of State may issue a fresh certificate,
"on an application by the person who applied for the previous certificate",
which, in the light of Amendment No. 4, is no longer required.
The amendments are intended to meet the concern raised by the noble Baroness, Lady Turner, at Committee stage that in this context the word "may" could have led to some uncertainty about the requirement placed on the Secretary of State to issue certificates as set out in subsection (2) of Clause 4.I hope that the noble Baroness will see that the amendments offer a positive response to her concern, and I am sure that the House will support them.
Lord McCarthy: My Lords, we thank the Minister for agreeing to this change. It is an improvement to the Bill.
On Question, amendment agreed to.
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment
No. 5:
Page 2, line 41, leave out from ("certificate") to ("being") in line 1 on page 3 and insert ("without an application for one").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 4.I beg to move.
Lord McCarthy Lord McCarthy moved Amendment No. 6:
Page 3, leave out lines 8 and 9 and insert ("and the fresh certificate shall replace any existing certificate in force").
The noble Lord said: My Lords, we hope that the Minister will agree with us on this occasion too. Clause 4 deals with the rules for the compensator to obtain a certificate. In particular it deals with the situation where the compensator applies for a fresh certificate when the old certificate is still in force.
As we have stated, what we have against the Bill as it stands is that the Secretary of State is bound to issue a new certificate within a prescribed period. We do not like the way that that is spelt out on the face of the Bill; namely, the prescribed period and, secondly, the period stated for a situation where he fails to prescribe. In the second circumstance we do not have a prescribed period; however, the Bill goes on to say that the second situation will apply in the four weeks beginning on the day after the certificate lapses. We feel that that will lead to what we previously termed the problem of hiatus in that there can be four weeks in which there is no valid certificate and therefore no settlement. We therefore wish to amend the Bill so that the relevant part of the text reads,
"the period of four weeks",
and,
"the fresh certificate shall replace any existing certificate in force".
We consider that that will do away with the hiatus and enable there to be a settlement at any point. I beg to move.
Lord Mackay of Ardbrecknish: My Lords, under the present scheme no application for a fresh certificate may be made until the existing certificate ceases to be in force. Clause 4 of the Bill has already been amended to allow for replacement certificates to be requested before the expiry of existing certificates. The noble Lord, Lord McCarthy, indicated his agreement to this and I believe it is an improvement on the present position.
The amendment we are discussing would go further. It would require the compensation recovery unit to issue replacement certificates before the existing certificates had expired. Once the replacement had been issued it would revoke the certificate already in force.
I have some sympathy with the concerns expressed about the difficulties which can arise through a gap between two certificates. I fully appreciate that, but although the amendment may appear logical and desirable, it could create some potential problems which I wish to set out.
One difficulty that might arise is that if we change the procedure there could be a lack of clarity about the amount of benefits to be repaid if two certificates were in existence at the same time covering the same period. The noble Lord's amendment seeks to deal with the difficulty by making the second certificate take legal precedence over the first. However, that would not solve the problem where the negotiating parties had not received the subsequent certificate but had decided in the meantime to settle on the basis of the previous one. That could happen quite easily where a compensator was requesting certificates at set intervals. A subsequent certificate could be in the post while settlement was being reached on the basis of the earlier certificate. In such a situation the settlement might need to be reopened to reflect the contents of the later certificate. That would present particular problems in a case where an award was made by a court in the light of what turned out to be an invalid certificate, although plainly the problem would not be confined to cases that had reached court. So the creation of overlapping certificates would cause difficulties.
Where difficulties would arise through a gap between certificates, which is the problem the noble Lord, Lord McCarthy, wishes to address—I do not believe that he is concerned about the overlapping point—I can assure the House that the compensation recovery unit already operates a "fastpath" procedure. It will make every effort to provide certificates urgently where there is a genuine need for one. That has on occasion included faxing certificates to courts where necessary so that victims and defendants have the correct documents to hand. I emphasise, as I did in Committee—and I do not believe I heard anyone dispute it—that there is general satisfaction with the service provided by the compensation recovery unit. That is certainly the impression that was conveyed to the Social Security Select Committee in another place during its inquiry into the existing scheme. If we have administrative

127
arrangements that work well, it seems unnecessary to encumber the statute book with excessive detail on how those arrangements should operate, especially when problems could arise in some cases with overlapping certificates, a newly issued certificate being already on its way when a case was being settled on the basis of the old certificate.
I understand the problem and I do not wish to be too unhelpful. I would be prepared to ensure that all practitioners in the field were consulted, as they frequently are, on whether there are any operational improvements they would like to see which could reduce gaps in certificates still further. As I indicated, all the evidence I have is that the "fastpath" procedure prevents gaps occurring and we do not need any statutory provision.
I hope that the noble Lord, Lord McCarthy, will feel that my response has been constructive on the question of gaps. In the light of my explanation and the assurance that if, in all the discussions we have and will continue to have with the practitioners, any problems occur we will try to ensure that we deal with them administratively, I hope that the noble Lord will withdraw his amendment.
Lord McCarthy: My Lords, I thank the Minister. There is still Third Reading for us to persuade him further, as we did just now. I do not know who the people are who apply for new certificates but do not know that negotiations are going on. As I understand it, in the model the claimant or the claimant's representative and the compensator's representative are negotiating. Someone applies for a new certificate, whoever it is, but the people negotiating do not know, so they reach a settlement. Then, when they go home, they say, "It's no good, there's a new certificate." I should have thought that they would know perfectly well that there would be a new certificate. Anyway, if they forgot they could always take it into account and renegotiate the settlement. I can see no difficulty. However, no doubt we can return to the matter at Third Reading. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
4.30 p.m.
Clause 6 [Liability to pay Secretary of State amount of benefits]:
Baroness Turner of Camden Baroness Turner of Camden moved Amendment
No. 7:
Page 3, line 44, at end insert—
("() Subsection (2) shall not apply to an interim payment or payments paid before the final settlement of the claim which is, or where more than one interim payment has been made are in total, below an amount or amounts specified in regulations made pursuant to this subsection.").
The noble Baroness said: My Lords, I am raising again, as I did in Committee, the whole issue of interim payments. As I said then, it can be quite a difficult issue. Often in the case of personal injury it is not possible to make an accurate assessment of future disability immediately, perhaps for some time until the condition
128
has settled down. In such circumstances, it is quite usual for those representing the injured employee, in the case of industrial injury, to attempt to negotiate an interim payment. Of course, that is beneficial and normally to the advantage of the injured person.
It has become the practice, however, for insurers to require the interim payment to be allocated to special rather than general damages. Interest rates on special damages are higher than for general damages. Thus, by making an interim payment allocated to special damages, the insurer can potentially save money on the final settlement. The original recoupment provisions added the complication that any interim payment had not only to deal with the needs of the accident victim but also any recoupment incurred to date. That meant that an interim payment might have to be applied for in a much larger sum than might otherwise have been the case.
In smaller cases, as was explained in Committee, this would not have been much of a problem because under the old system which the present Bill seeks to replace there was a small payments limit of £2,500. There seems to be general agreement that the limit should go because it has been capable of manipulation in settlements in a way that was not originally intended. However, I still think that that leaves us with the problem of interim payments.
The Minister's response last time round was that it would be up to the victim's representatives to negotiate a payment with the provisions of Clause 8 in mind. He said that he appreciated that they would perhaps rather not have to negotiate an interim payment with recovery in mind, but he did not see any alternative if the taxpayer is properly to be protected.
While we understand that argument, we are nevertheless concerned to protect the interests of the person who has had the accident. It may well have occurred through no fault of the victim. Indeed, that is probably the case in situations in which compensation is being paid under an employers' liability policy. We have thought seriously about the problem again. The amendment has been drafted carefully, as last time, to allow the Minister to introduce regulations after appropriate consultations which would specify the amount below which recovery could not be triggered. I had the clear impression last time that the Minister, while not accepting our amendment, nevertheless acknowledged that there was a problem. I hope, therefore, that in the intervening period since the Committee stage, he has been able to look at the matter again and that this time he will be more favourably disposed towards our amendment. I beg to move.
Earl Russell: My Lords, one of the crucial points behind the amendment is that general and special damages pay interest at a different rate. Therefore, the amount to be recovered under them will be different. The key point to which we shall return on the next amendment is that, to agree to a settlement, the claimant needs to know what he is actually getting. The

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amendment is vital to achieving that end. If it is not achieved, the amount of litigation will increase in a most unwelcome way to all parties concerned.
Lord Mackay of Ardbrecknish: My Lords, as the noble Baroness, Lady Turner, explained, the amendment would exempt interim payments from benefit recovery where the total fell below a prescribed limit. As she indicated, we had a debate on an identical amendment at Committee stage. I had rather hoped that I had persuaded her that the situation should be left as it is in the Bill. However, it has been suggested again that the amendment is necessary to protect interim payments provided to victims to meet their immediate needs.
The principle behind all this is that compensation may only be reduced in respect of benefits already paid to the victim in respect of the same needs and that, of course, also applies to recovery made from interim payments. So an interim payment with no direct parallel within the social security system, such as a payment towards the cost of an operation, could not be made the subject of a reduction. I was sympathetic on that point and happy to give that clear assurance. Reductions can only be made where the victim received public funds to meet the same need for which compensation is claimed. For example, if a victim is offered an interim payment in respect of income lost because of his injury, that payment would be reduced in respect of benefits already paid during the same period to meet the same need. I cannot see anything objectionable about that. The victim will have received benefits since the injury. If he requires any further payment for past earning loss, the compensator will need to make payments covering both sums, and that seems only right and proper.
It was suggested that insurers allocate interim payments to special damages which are paid in respect of pecuniary loss rather than general damages, which include those for pain and suffering, because of the preferential interest rates attached to those damages. I do not approve of attempts to avoid costs by disguising the true reason for making a payment. If such manipulation is taking place, it would be better to address the issue directly rather than change the benefit recovery process in order to mitigate the problem. Indeed, my noble and learned clansman the Lord Chancellor agreed to consider the issues involved.
If we turn to the amendment as proposed, our experience of the way in which the small payments limit has been manipulated under the present scheme—I do not believe there is any disagreement between us on that issue—suggests that public funds would be put at risk if we introduced a similar limit and applied that to interim payments. Of course, it would theoretically be possible to introduce a limit at such a low level that manipulation became almost impossible. However, that would make an interim payment made within such a limit all but valueless to the victim.
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We should not repeat the problem of the small payments limit that we have in the existing scheme, and which we are attempting to get away from, by putting a small payments limit on any interim payment; that would be a mistake. Equally, it is right that when the two parties are considering any interim payment and where that interim payment has anything to do with income loss—if it is not to do with income loss, if it concerns pain and suffering or is for a specific purpose for which no benefit has been paid, the repayment of benefit does not come into it—it is right that the two parties take into account the fact that benefit recovery may take place as well. When they come to an agreement about an interim payment in those circumstances, they can take that into account and the compensator can pay whatever it is to the compensation recovery unit and still pay to the plaintiff whatever sum of money the plaintiff was seeking for his income loss other than the benefit that he has been paid.
I hope that I have explained the issue to the noble Baroness and managed to assure her that under the new legislation there will be no question of any payment made of an interim nature—for example, for an operation or for pain and suffering—being drawn back in benefit recovery. It will only be where the payments being made are to do with income loss. Both parties will be well aware of that potential drawing down of the money and will therefore adjust the interim payment accordingly.
Baroness Turner of Camden: My Lords, I thank the Minister for that response, though I am not entirely convinced by it. What bothers me is that, as a result of the new legislation, there may be some impetus not to negotiate interim payments at all. That would be a pity because in many instances interim payments are of great value to the injured employee and we would not want to do anything which would inhibit such arrangements.
Moreover, although there is concern about special and general damages, I suspect that insurers do not regard it as manipulation to allocate money to specials; they regard it as legitimate, probably with a view to reducing the interest burden. I suspect we shall still see that happening with the new arrangements.
I note that the Minister says that it is only intended to deal with income loss. He is again concerned with the possibility that there may be double compensation. I do not share those concerns. When we discussed this matter originally I expressed the view that the whole argument in relation to double compensation was one that could be rather unfair to the individual who had been injured, and that is still my position. However, I do not intend to press the issue to a vote at this stage. I shall think about it again between now and Third Reading.
I am not altogether satisfied with what we have been told this afternoon. It presents some problems, particularly for people who have to represent those individuals who have been injured at work. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 8 [Reduction of compensation payment]:
4.45 p.m.
Lord McCarthy Lord McCarthy moved Amendment No. 8:
Page 5, line 25, at end insert—
("() A person who makes an offer of a compensation payment (whether by payment into court or otherwise) shall state whether that compensation payment has been calculated in accordance with this section and, if so, the amount allowed in the offer for each head of compensation listed in column 1 of Schedule 2 and the amount of each recoverable benefit which has been deducted from each of those heads of compensation.").
The noble Lord said: My Lords, we return to a subject that we have debated throughout the passage of the Bill. In moving Amendment No. 8 I shall speak also to Amendment No. 9, in which the noble Earl, Lord Russell, is trying to do the same as many others have tried to do with different forms of words at different stages. We have not yet made much ground.
It may help if I say in simple terms what we take to be the central issue; that is, that in this area there should be equal rights for the compensator and the victim. Every right of access and information flow which goes to one should go to the other. Knowledge is power. It is not right and it is not seen to be right if one of the parties to a dispute of this kind has more access to information in a preferential way than the other party. That is our belief.
The second cause we are trying to advance is that it is better to settle matters in knowledge than in ignorance. On the whole, people will obtain more justice and be more satisfied with that justice if they have all the facts before them when the decision is made and they resolve what they want to do. We have tried in successive amendments to embody those two principles but the Government have not accepted them. This amendment seeks to break down the compensation into various headings so that the parties know how much compensation is for pain and how much for suffering. In particular, we want them to know how much they will have to pay back in terms of benefits received.
The noble Viscount, Lord Chelmsford, told us that in the real world people do not want those things. They would rather act in ignorance; they go in for aggregates and in that way avoid court settlements. Perhaps they do; but it is not right that the victims should not have access to the information if they want it and if they want to break that practice. The Minister said that that is the way the real world works.
The Minister wrote to me. I thank him for the letter and want to say a word about it. The Minister did three things in that letter: first, he made an admission; secondly, he offered us some comfort; and, thirdly, he gave us a warning. None of those things leads us to feel that we should not press the amendment. The Minister admitted in the letter that there may be a conflict of interest; indeed, he said that in Committee. It might be explicable that the Association of British Insurers favoured ignorance and non-specification and that the Association of Personal Injury Lawyers and their clients favoured knowledge, information and specificity because it was felt that they would do better, and there was a conflict of interest. But we say that if there is a conflict of interest, the law should hold the balance. I do not find that argument convincing.
The letter then offered a comfort. It said that it does not matter because those who negotiate can always negotiate over a net sum. Even if they do not know, they can reach an agreement that they will bear any unusually large recovery which takes away from the net sum. Yes, they can, but we do not know that they will. We have no proof that they will. If we do not give the victim the same information as the compensator gets, he or she will be under some premium to do it that way and to agree that that is the way it should be done.
Finally, the Minister offered us a warning. That warning is probably the best argument he has. He said that if we do it in this way there will not be settlements and that if we do it this way everything will come to court. The trouble with that argument is that we have no evidence that that will be the case. We think it is equally likely— indeed, more likely—that if people have all the evidence and know the circumstances they will be more willing to settle out of court than to go to court. I beg to move.
Earl Russell: My Lords, it is arguable that this may be the most important amendment to the Bill. Indeed, I am inclined to suspect that the Bill may be totally inoperable if we do not accept something along these lines. The key question is whether people will be prepared to settle out of court. It is common ground among every quarter of the House that, where possible, we would like to keep down the amount of litigation. In Committee the Minister gave us a good deal of talk about the real world. But the real world is mutable. When in another place it was decided that the width between the two Front Benches should be two sword lengths, that was, when it was done, entirely in the real world. But the real world has moved on and now there are other considerations which influence the placing of Front Benches.
In the real world, as it has hitherto been, the Minister argued that if you could accept a global sum it did not desperately matter how that sum was made up. That was true hitherto. It will not be true in the future because under the Bill certain heads of damages will be liable to recoupment while certain others will not be liable to recoupment. Until you know whether the sum you are being offered comes under heads subject to recoupment, you simply cannot calculate how much you will get.
Perhaps I may take a case which appears to me to be strictly on all fours with what the Bill is proposing. Let me assume that I am invited to give a lecture at the University of Sheffield. I am offered a fee plus travelling expenses. I am told that the two together will amount to £200. Because I have to return after the last train, I have to drive. Those of your Lordships who have been Members of another place know that there is more than one way to calculate car expenses. Let us assume that I charge expenses at the rate that I usually do, which is lOp per mile. In that case the expenses will come to £36. I shall end up with a very limited amount of expenses and paying a considerable sum in tax.
Then suppose that I am getting expenses at the rate at which, until recently, Members in another place received it for medium sized cars—47.2p per mile. In that case I shall end up with a large amount of expenses, which of course will not be liable to tax, and a very

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much smaller amount of taxable income. I shall end up pocketing something closer to £190 rather than something closer to £130.
It is of some interest to me—I must declare an interest in the literal sense—which of those things I might be being offered. I find it hard to believe that a claimant is really very different. If you are offered an out of court settlement, you do not want to know a whole lot of theoretical things. I have never been particularly interested in my gross income. I want to know what I am actually going to get in my pay packet. Similarly, I think a claimant wants to know what he will actually get in his settlement. If he is not going to know that, I do not see why he should settle.
The Minister suggests that the claimant should simply telephone and get the figure. If he is that fly, perhaps it is all right. But not everyone in the real world—more sides of the House than one can talk about the real world—actually is that fly. The Minister said:
"The concern of victims at the moment and the one which we are addressing in the Bill is that benefit recovery can eat into pain and suffering. If the victim sees that all his award will be removed because of benefit recovery and nothing has been allowed for pain and suffering he will not agree to the deal".—[Official Report, 10/12/96; cols. 991–2.]
The Minister could not have put my point better.
The Earl of Clanwilliam: My Lords, the noble Lord, Lord McCarthy, mentioned my noble friend Lord Chelmsford, who, unfortunately, cannot be present here today and has asked me to say a few words on his behalf. We are talking about the real world. Noble Lords opposite seem to think that claimants make their claims personally and do not make them through solicitors. In point of fact, a small claim may be readily agreed, and there is no problem. However, in larger cases there are the general costs and added to those are the special costs, including payment for suffering and loss of amenity. In such cases there will be much higher value awards, and a whole mass of additional, peripheral claims are made to maximise the claim by the solicitor on behalf of the claimants. The claimant does not make those claims. It is done by the solicitor.
For instance, loss of amenity can cover everything from a gardener's wages to holidays in the sun. The amendment would allow an unlimited range of additions which could open up a whole can of worms of new complaints, involving enormous time and expense on the part of solicitors. These matters are in the hands of solicitors. It is they who have the reins in their hands. They will be expected to maximise the claim item by subjective item if the opportunity is offered to them. That is the real world. The amendment will cause unnecessary delay. That is not in the claimant's interest and may tend to confuse the issue. Further delay will be inevitable. I emphasise that that is not in the plaintiff's interests and is contrary to the principles promoted by the noble and learned Lord, Lord Woolf. If it so happened that heads of damages could be agreed at the outset, there would implicitly be co-operation between the parties. No problems would arise and a quick
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settlement would ensue. However, the amendment would open up a can of worms and would delay matters interminably.
Lord Mackay of Ardbrecknish: My Lords, as your Lordships will recall, these amendments were discussed at some length in Committee. I expressed the view then—and it remains my opinion—that the effect of either of the amendments would be to allow benefit recovery to affect the settlement process to an unacceptable degree. We cannot allow the tail to wag the dog.
Earl Russell: My Lords, can the Minister explain why that is unacceptable? He puzzles me very greatly.
Lord Mackay of Ardbrecknish: My Lords, I shall indicate at least one reason why it is unacceptable if the noble Earl wishes me to do so now. It may be unacceptable to the plaintiff to allow the settlement to drag out. He may be quite keen to get to the end point and get his money. Furthermore, as it so happens, if it drags out and benefit is in payment, the potential amount of benefit recovery will be increased. Therefore, the sooner a conclusion can be reached the better it is for the plaintiff and the better it is for the compensator— for exactly the same reason of benefit recovery. As long as the clock is ticking and is moving on, benefit is being paid which potentially can be recovered. If the case is settled, that is an end of the matter so far as concerns any further benefit recovery. So I believe that it is in the interests of the plaintiff and of the compensator to come to a speedy solution.
Your Lordships may recall that I mentioned at Committee stage that over 90 per cent. of compensation settlements are made out of court. A settlement is offered representing compensation for all losses suffered. What may be included in that figure is loss of earnings, cost of care, pain, suffering and so on, and they are not separately identifiable. That is what actually happens, but whether that is the real world or not that is the situation.
As I have explained, negotiating parties may never agree on the amounts of compensation that they believe would be appropriate in respect of each of these elements. Nonetheless, they may be able to agree a global sum in settlement of the claim. That is the situation under the present scheme. Although the benefit recovery arrangements will change, the Association of British Insurers firmly believes that victims and compensators will still, in most cases, wish to negotiate a global settlement without the necessity to agree on its constituent parts. I see no reason to doubt its word. Indeed, as my noble friend Lord Clanwilliam has just outlined, that is the argument put very firmly by the practitioners in the field and by the Association of British Insurers. It is also the argument that was put very firmly by my noble friend Lord Chelmsford at Committee stage from his experience in this particular area.
I do not have any reason to doubt the word of the people involved that the position will still be as it is currently and that in most cases global sums will be

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negotiated in out of court settlements. Unless the noble Earl is keen—and he did not seem to be at the beginning of our discussion—to have a "benefit for lawyers" operation here, he should perhaps agree that the quicker the settlements are made and the fewer that go to court the better it will be for the general public, the taxpayer, plaintiff and compensator, but perhaps not for the lawyer.
5 p.m.
Earl Russell: My Lords, can the Minister accept that it is common ground between us that the sooner settlements are made the better? The point at issue is the quickest way to a settlement. Our contention is that settlements are not easily reached if they are never in the interests of the claimants.
Lord Mackay of Ardbrecknish: My Lords, a settlement will not be reached if the claimant does not believe that it is in his interest and he is not happy with the settlement being offered. But, as I have suggested, over 90 per cent. of cases are resolved out of court. The Association of British Insurers and my noble friends Lord Clanwilliam and Lord Chelmsford have claimed that that is how the system works. As I tried to explain in the letter that I sent to the noble Baroness, referred to by the noble Lord, Lord McCarthy, if the process remains broadly as it is now, in a case where benefit falls to be recovered we fully expect that the sum agreed with the victim will usually be net of compensation. For example, if £B of benefit were due to be repaid the compensator might offer the victim a further £C in compensation. The victim would get the £C in compensation, but the compensator's liability would in fact be £B plus £C. That is how we believe these settlements will be negotiated, and all the advice that we have received suggests that that will happen.
Of course, in future it will be possible for the victim and the compensator to assess the amount of compensation they believe should be paid in respect of the losses that the victim has sustained and the amount of any reduction in respect of benefit recovery. In the circumstances that we are talking about, neither side will know what calculation the other side has made in order to arrive at the estimate and how they have built up their own negotiating position. That is usually the case where the figure for compensation is negotiated between two parties whether or not benefit has been paid. Nonetheless, we believe that when both parties are satisfied that the offer on the table conforms with their own estimate, then they will settle, just as happens under the present scheme. We certainly do not believe that we should say, "No, you cannot do that. The compensator must spell out the heads of damages that make up this global figure that is being offered".
If a victim is not content with the global figure offered by the compensator or suspects that the protection of compensation for pain and suffering under the benefit recovery rules has not been taken into account, then there are options open to him. If he were unsure about the reason for the discrepancy he could ask the compensator about the reason for it, producing supplementary evidence to support his position.
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Ultimately, the case could go to court, but that is no different from the present position where a multiplicity of factors can result in that outcome.
Court awards of compensation will specify any elements which may be reduced in respect of repaid benefits. Any reduction of such compensation may only take place in accordance with the rules as set out in the legislation. However, if the compensator's offer closely matched the victim's own expectations, there would be no reason for him to complain and the case should be capable of being settled.
Finally, it has been suggested that if the compensator were required to reveal his calculations to the victim it would expedite settlements. Victims' representatives may believe this, but the Association of British Insurers suggests the reverse—that the additional procedure would delay settlements. I at least understand that because one can believe that one can agree the total sum, but when the way in which it is split up is seen, the victim may say, "I don't agree with that and we shall have a fight over it". It obscures the fact that they are reasonably satisfied with the total sum and are prepared to accept it.
I return to a point that I made to the noble Earl earlier. Since the period for benefit recovery runs to the date of settlement, any delay would be likely to increase the amount of benefit recoverable and might therefore result in a further reduction in the amount of compensation payable to the victim. I do not believe that that is a desirable outcome. Indeed, in an intervention the noble Earl indicated that we are at one in wanting settlements to be made as speedily as possible.
I believe that there is a serious difference between us and partly, I believe, because we are listening to different sets of outside advisers who are giving us different advice. I am content to stand by the views of the Association of British Insurers that we shall continue to see most of the cases being dealt with in out of court settlements if we proceed along the lines that the Bill outlines. That will enable a compensator to make an offer without having to break it up. I am not sure whether I have persuaded the parties opposite of the lightness of my case. If I have not and they pursue the matter to a Division, I hope that my noble friends will support me.
Lord McCarthy: My Lords, I am glad that the Minister spoke at some length because he made it more and more clear as he spoke that he was representing to us the position of the Association of British Insurers. As I understand it, that is also the view of the noble Earl, Lord Clanwilliam. That is the advice which is received and it is the advice that the Minister takes. But it is not the advice that we get. We have been told that the victims' solicitors need to know the breakdown so that they can advise their clients what to do.
The Earl of Clanwilliam: My Lords, surely, it is the claimant's solicitor who is making the excessive claims which are going to extend the process interminably.
Lord McCarthy: My Lords, that is a natural attitude for an insurer to take and I quite see that. But the

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claimant may say that if he has not got someone making as many claims as he can, he will be done by the insurer's solicitors. That is what it is all about. The claimants' solicitors are saying to us that they need to have a breakdown and that it is not irrelevant but extremely relevant to have that. For example, they need to know the level of the benefits deducted and whether those benefits are legitimate. They also wish to know whether the Ministry has deducted the proper figures. They need to test these matters. They say to us that the modern trend in litigation, whatever may happen with insurers, is to have the cards on the table. It is up to the plaintiff. If he feels that the claim is dragging out because his solicitor is listing all these irrelevant matters, it is up to him or her to say, "I want a settlement."
It is bizarre that the Minister paints a picture of such strange people who only want the settlement and are not interested in the details. According to the Minister, only their solicitors are interested in the details and all they want is the settlement. Suddenly, however, when they are told the details, they go mad. They do not say, "I just want an overall figure"; they say, "How much am I getting for this and how much for that?" According to the Minister, we have to keep such information away from such weak-minded people because, if they were told such information, they would go to their solicitors and say, "Keep it up for another six months". That is totally bizarre. It is unlikely and implausible, but that is what the Minister believes because he takes advice from the Association of British Insurers. We may have to come back to this on Third Reading—
Baroness Hollis of Heigham: We shall!
Lord McCarthy: My Lords, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 9 not moved.]
Clause 12 [Reference of questions to medical appeal tribunal]:
[Amendments Nos. 10 and 11 not moved.]
Lord Mackay of Ardbrecknish Lord Mackay of Ardbrecknish moved Amendment No. 12:
After Clause 21, insert the following new clause—
LIABILITY OF INSURERS
(".—(1) If a compensation payment is made in a case where—

(a) a person is liable to any extent in respect of the accident, injury or disease, and

(b) the liability is covered to any extent by a policy of insurance,
the policy is also to be treated as covering any liability of that person under section 6.

(2) Liability imposed on the insurer by subsection (1) cannot be excluded or restricted.
(3) For that purpose excluding or restricting liability includes—

(a) making the liability or its enforcement subject to restrictive or onerous conditions,

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(b) excluding or restricting any right or remedy in respect of the liability, or subjecting a person to any prejudice in consequence of his pursuing any such right or remedy, or

(c) excluding or restricting rules of evidence or procedure.

(4) Regulations may in prescribed cases limit the amount of the liability imposed on the insurer by subsection (1).
(5) This section applies to policies of insurance issued before (as well as those issued after) its coming into force.
(6) References in this section to policies of insurance and their issue include references to contracts of insurance and their making.").
The noble Lord said: My Lords, as noble Lords may recall, I explained at Second Reading of this Bill that, if necessary, I would later bring forward amendments to put it beyond doubt that policies of insurance cover the liability to repay benefit. The amendment I am now proposing introduces a new clause into the Bill dealing with insurers' liabilities under contract.
Although we had identified the possible need for this clause at a much earlier stage of the Bill, it relates to an area of law which is inherently complex. It has been necessary to consult other government departments to ensure that their regulations were taken into account before finalising the clause.
I now turn to the detail of the clause itself. Subsection (1) provides that insurance policies giving cover against injuries to third parties shall also be taken to cover the liability to repay recoverable benefits set out in Clause 6 of the Bill.
Subsections (2) and (3) put it beyond doubt that the liability of an insurer to repay benefits cannot be circumscribed or restricted.
Subsection (4) is designed to deal with the situation where an upper limit on the insurer's liability to pay compensation in the event of injury has been agreed and reached. It enables the Secretary of State to restrict the amount of benefit the insurer has to repay in such circumstances. Because the upper limits which apply in personal injury policies are usually very high, such situations are likely to arise extremely rarely. However, where such a limit is reached, and the insurer is not liable to pay the whole of any compensation due, it would not be appropriate for him to be held responsible for the repayment of the whole of the benefits recoverable. However, we still intend to seek full repayment of benefits from the compensator in all other circumstances. It will be necessary to devise workable rules for restricting liability to repay benefits in such a scenario in consultation with interested parties. The inclusion of this regulation-making power gives us the flexibility to carry out that consultation before the new scheme comes into effect.
For the avoidance of any doubt, I should make it clear that, where the liability of the insurer for the full amount of the recoverable benefits has been reduced by virtue of the operation of regulations made under subsection (4) of the new clause, the provisions of Clause 8 of the Bill will be operated on the basis of that reduced liability in order to calculate the appropriate net compensation payment to the victim.
Subsection (5) makes it clear that the new liability to repay recoverable benefits applies to policies contracted both before and after the point of implementation of the reformed scheme.
Subsection (6) deals with the fact that an insurance contract underlies an insurance policy—thus putting the clause on a correct legal basis. I commend the amendment to your Lordships. I beg to move.
Schedule 1 [Compensation payments]:
Baroness Turner of Camden Baroness Turner of Camden moved Amendment No. 13:
Page 17, line 27, at end insert—
(". Any payment made—

(a) in consequence of an action under the Fatal Accidents Act 1976; or

(b) in circumstances where, had an action been brought, it would have been brought under that Act.

. Any payment made to or for the injured person in respect of a liability arising by virtue of section 1 of the Damages (Scotland) Act 1976.
. Without prejudice to section 6(4) of the Vaccine Damage Payments Act 1979 (which provides for the deduction of any such payment in the assessment of any award of damages), any payment made under that Act to or for the injured person.
. Any award of compensation made to or for the injured person by the Criminal Injuries Compensation Board or Criminal Injuries Compensation Authority under the Criminal Injuries Compensation Act 1995.
. Any payment made out of property held for the purpose of the charitable trust called the Macfarlane Trust and established partly out of funds provided by the Secretary of State to the Haemophilia Society for the relief of poverty or distress among those suffering from haemophilia.
. Any compensation payment made by British Coal in accordance with the NCB Pneumoconiosis Compensation Scheme set out in the schedule to an agreement made on 13th September 1974 between the National Coal Board, the National Union of Mineworkers, the National Association of Colliery Overmen, Deputies and Shot-firers and the British Association of Colliery Management.
. Any payment made to or for the injured person in respect of sensorineural hearing loss where the loss is less than 50db in one or both ears.
. Any contractual amount paid to the injured person by his employer in respect of a day of incapacity for work.
. Any payment made by the Macfarlane (Special Payments) Trust established on 29th January 1990 partly out of funds provided by the Secretary of State for the benefit of certain persons suffering from haemophilia.
. Any payment made by the Macfarlane (Special Payments) (No. 2) Trust established on 3rd May 1991 partly out of funds provided by the Secretary of State for the benefit of certain persons suffering from haemophilia and other beneficiaries.
. Any payment made under the National Health Service (Injury Benefits) Regulations 1974 or the National Health Service (Scotland) (Injury Benefits) Regulations 1974;
. Any payment made to or for the injured person to compensate him for the cost of medical treatment and incidental expenses for medication and travel for medical treatment.
. Any payment made to or for the injured person to compensate him for damage to property including (but not limited to) damage to or loss of a motor vehicle and expenses incidental to such damage or loss, damage to or loss of clothing or jewellery and damage to or loss of physical aids used by the injured person.").
The noble Baroness said: My Lords, the amendment is designed to write into the Bill the exemptions to recoupment which exist in the present legislation. The
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Minister confirmed in Committee that it was not part of the Government's intention to change the existing exemptions in any way. As will be seen from the list in the amendment, the exemptions are important, covering as they do benefits to haemophiliacs, payments made under the Fatal Accidents Act, and payments to victims of pneumoconiosis, which often affects miners for the rest of their lives once it has been contracted.
I do not want to repeat all the arguments that were advanced in Committee, and the reason we return to the amendment is that the Minister told us then that his departmental lawyers were considering the matter carefully to see, apparently, whether it was necessary to include the list in the Bill. We believe that the list should be included. This Bill deals with the recovery of social benefits. If there are to be exemptions to recovery, it is clearly better that they should be set out in the same piece of legislation. We should therefore like to know what the Minister's lawyers have had to say about this for the sake of clarity. As I said in Committee we believe that the list should be included. I beg to move.
5.15 p.m.
Lord Mackay of Ardbrecknish: My Lords, as your Lordships know, the payments which are exempt from the benefit recovery scheme are set out in Schedule 1 to the Bill. The schedule also contains a power to exempt other types of payment.
The amendment proposed by the noble Baroness would put on the face of the Bill payments which appear as exempt in the present scheme under either primary or secondary legislation, as the noble Baroness has explained. On the previous occasion when we discussed this issue I emphasised the Government's intention that payments which are exempt in the current scheme should remain exempt under the new arrangements.
As the noble Baroness pointed out, the list of exempted payments in Schedule 1 to the Bill does not mirror those currently contained in the Social Security Administration Act because we are confident that the payments which have not been included could not be caught by the provisions of the Bill. I repeat that we are confident of that and I hope that that reassures the noble Baroness.
Perhaps I may give one or two examples. Compensation paid in consequence of the Vaccine Damage Payments Act 1979 or the Criminal Injuries Compensation Act 1995 is paid in consequence of the Secretary of State's statutory duty to make such payments. It is not paid because the Secretary of State is himself liable for the injuries sustained by the victim. When it comes to payments currently listed in regulations as exempt from recovery which could be caught by the Bill, use will be made of the power given in paragraph 8 of Schedule 1 to ensure that they remain exempt when the new scheme takes effect.
I hope that that explanation and the examples given with regard to the Vaccine Damage Payments Act and the Criminal Injuries Compensation Act will reassure the noble Baroness about exactly why our lawyers are confident that the advice that they gave me last time is correct. That is why I have restated the position as

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firmly as I have to the noble Baroness. I hope that my explanation has persuaded the noble Baroness that there is nothing sinister in shortening the list of exempted payments currently contained in the Social Security Administration Act and that the fears which the noble Baroness quite understandably brings to this issue are without any justification. I hope that she will feel able to withdraw the amendment.
Earl Russell: My Lords, I thank the Minister for those remarks, but wonder whether I may attempt to clarify them a little further. I am always a little anxious when I hear the words, "The Government are confident" because they always seem to indicate that the Government are quite certain what they think but cannot quite tell us why they think it. Perhaps, therefore, I may relieve my misgivings by probing a little further about why the departmental lawyers are confident.
I see the seeds of two possible answers and I should like to know on which of those the Minister is relying. One possible answer is that the Minister is relying on Schedule 1 (8) and that the payments were exempted by regulation under the heading, "Any prescribed payment". That is a familiar principle of the Cambyses laws—that the Secretary of State may do whatever he likes. I dare say that it may be a complete reassurance for the Minister for this Government for the remainder of this Parliament. To avoid making any personal reference to any party, I say that that cannot be a convincing assurance on behalf of the Government after next. Nobody can know what they might be going to prescribe. If that is all that the Minister is relying on, I fully accept his sincerity, but I do not accept the legal force of what he says. It is not sufficient.
Alternatively, he may be relying on the fact that the Acts containing these payments are not specified in the repealing schedule and therefore cannot be altered except by primary legislation. As I understand it, this is not a Henry VIII provision in the schedule. Am I right in thinking that the words "Any prescribed payment" cannot apply to any payment not specified in a statute and that he cannot alter a statute by means of this regulation? If he gave that answer I would be a little more reassured than I am merely by the invocation of the regulation-making power. That may be of material assistance to me, and I shall be very interested to hear what the Minister has to say about it.
Lord Mackay of Ardbrecknish: My Lords, I believe that if the noble Earl checks in Hansard he will see that I picked out two of the Acts which the noble Baroness, Lady Turner, had listed: the Vaccine Damage Payments Act and the Criminal Injuries Compensation Act. I explained why they could not be caught by the provisions of this Bill. They are not paid because the Secretary of State is himself liable for the injuries sustained by the victim. It is for that reason that they cannot be caught, and the department's lawyers are very clear in that view. The only other payments that are exempted by primary legislation governing the operation of the present scheme which have not been carried forward are payments made under the Fatal
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Accidents Act 1976 and the Damages (Scotland) Act 1976. Such payments are made to a close relative of a deceased person as a consequence of bereavement. The provisions of Clause 1 of the Bill do not permit the recovery of benefits paid in respect of a deceased person from the payment of compensation made to a surviving relative. It follows, as I am sure the noble Earl understands, that there is no need to exempt such payments specifically either on the face of the Bill or in regulations. I hope that that provides a little help in this difficult issue.
Baroness Turner of Camden: My Lords, I thank the Minister for his response to this amendment and his assurance, which he has repeated this afternoon, that the Government do not intend to remove any of the protections or exemptions that already exist, which is very important. I note his comment about the various pieces of legislation referred to in my amendment. I also note his comment that the Government are confident, and their lawyers have advised them, that they do not have to do anything on the lines of the amendment tabled this afternoon. It is not my intention to press this matter to a vote this afternoon. I shall look carefully at the assurances given by the Minister that are now on record in response to the issues raised in Committee. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.

Home Energy Rating Surveys Bill [H.L.]
5.23 p.m.
Lord Ezra: 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 Ezra.)
On Question, Motion agreed to.
House in Committee accordingly.
[The DEPUTY CHAIRMAN OF COMMITTEES (Baroness Nicol) in the Chair.]
Clause 1 [Home energy rating survey]:
Lord Ezra Lord Ezra moved Amendment No. 1:
Page 1, line 8, after ("mortgage,") insert ("offer to").
The noble Lord said: In moving Amendment No. 1 I shall speak also to Amendments Nos. 3 to 5. The object of these amendments is to meet some of the points raised by the noble Baroness, Lady Miller of Hendon, at Second Reading of the Bill on 5th December. The noble Baroness then stated that, while the Government had some sympathy with the aims of the Bill—which were to promote the use of energy ratings for domestic residences to lead to the more efficient use of energy—they had reservations about the method proposed. In particular, the noble Baroness pointed out that an obligation to provide an energy rating survey with every mortgage loan could lead to much unnecessary work and expense, as some borrowers might not be interested in such a survey and

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in other cases it might be a newly-built residence which would have a relatively high energy rating survey already under the buildings regulations.
I consider that this is a valid point. It is for that reason that I have tabled Amendment No. 1. The amendment would oblige mortgage lenders only to offer to make an energy rating survey. Amendment No. 5 states that the obligation to offer an energy rating survey shall not apply to any residential accommodation on which a mortgage lender has reasonable grounds for believing that an energy rating survey has been made within the past three years. That would eliminate all new buildings. Three years is regarded by the professional firms who are engaged in making energy rating surveys as the minimum period that should be allowed to elapse after each survey. Following the period of three years circumstances may well have changed to justify a revised survey.
Amendment No. 4 provides that a mortgage lender shall take reasonable steps to explain the benefits of such a survey to intending borrowers so that they are aware of the situation. Amendment No. 3 is simply a drafting amendment which follows upon Amendment No. 1.
I believe that with these modifications the Bill will help to promote the much more widespread use of energy rating surveys, to which I understand the Government are committed. One must bear in mind that some half million mortgage loans are made each year. In my view, this is a much more effective way of spreading the use of home energy rating surveys than leaving it to individuals.
During Second Reading the noble Baroness pointed out that one of the conclusions from the trials recently carried out with selected mortgage lenders was that,
"once house buyers are given information about what they can do to improve the energy efficiency performance of their homes, the majority of them—over 80 per cent.—welcomed the energy efficiency information provided and indicated that they would be likely to take action in the next two years".—[Official Report, 5/12/96; col. 845].
I regard that as very relevant to the proposals in the Bill.
Furthermore, it should be remembered that in 1994 the Environment Committee in another place recommended that the Government consider a mandatory scheme for home energy labels (as they were then described). This Bill does not go as far as that. It simply makes it mandatory for mortgage lenders to offer borrowers the opportunity of having an energy rating survey when the loan is being arranged. As was pointed out at Second Reading, that should be much less costly than for an individual home owner independently to arrange for such a survey to be carried out. The largest firm that provides valuation services to mortgage lenders, Countrywide Surveyors—which I mentioned at Second Reading—could provide an energy survey for £15 compared with up to £150 for an independent survey.
I trust that with the modifications now introduced the Government will be able to support not only the intentions of the Bill—I understand that they do—but also its detailed provisions. I beg to move.
Lord Graham of Edmonton: We on these Benches echo our sincere appreciation to the noble Lord, Lord Ezra, for giving us a canter round a very familiar course. I recall the sympathy of the Minister on the last occasion with the broad thrust of the Bill. There cannot be very many who object to a measure that is designed to make the running of a home more efficient and cost effective. Unless the Minister is able to tell us of a considerable cost that may fall upon the state, what we are after is sympathy and direction from the Government so that those who have it in their gift to put a bit more flesh on the bones will be encouraged to do so.
There is no doubt that the costs of heating and making heating systems more efficient to ensure that money is not wasted are becoming higher and higher.
The noble Lord, Lord Ezra, drew my attention to the fact that something which tells you what is wrong and how it can be put right may cost the consumer as little as £15. I, of course, accept his figures. So we should not look a gift horse in the mouth.
We are all conscious of the parliamentary timescale and all the other pressures. The Bill needs to leave this place as soon as possible to have any chance of support in another place. I hope that the Minister will recognise the genuine effort that the noble Lord, Lord Ezra, has made since Second Reading to make the Bill more acceptable, not just to the Government but to those outside this place. I think the phrase to be used about heating is that we give this proposal a warm reception.
5.30 p.m.
Lord Cochrane of Cults: I welcome the clarification and explanations given by the noble Lord, Lord Ezra, of this admirable Bill, which, looked at in the historic context, deals with a subject which is now as important to housing as drains were 150 years ago. For that reason, the clarifications and amendments which do much to improve the drafting of the Bill deserve every support.
Baroness Miller of Hendon: Amendment No. 1 is an important change which takes away the requirement for mortgage lenders to carry out a SAP rating and provide one for every prospective mortgagor. It would have the welcome effect of reducing the burden on mortgage lenders by requiring them only to make an offer of a SAP home energy rating report. I understand, though, that the Council of Mortgage Lenders has indicated that it would still resist such a proposal.
Amendment No. 3, as the noble Lord, Lord Ezra, said, is consequential upon Amendment No. 1. Amendment No. 4 would place an obligation on mortgage lenders actively to promote the offer of a SAP rating and advice. I understand that some mortgage lenders are likely to view this as an unnecessary burden, and even though it is unlikely to be an arduous one an unwilling lender is less likely to explore the options to provide the most effective rating and advice services than it would have done if it had initiated a voluntary scheme.

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The Government are active in a wide range of programmes to improve energy efficiency. We agree that it is important to promote energy efficiency but we still have reservations about the Bill and hope that the lenders can be encouraged to become much more involved in voluntary schemes.
We were delighted to hear recently of the initiative by NatWest Home Loans to pilot a SAP rating and energy advice service. That is just the kind of approach which the Government think is likely to be more effective than prescription and legislation. We will be keeping in close touch with developments.
Amendment No. 5 would avoid duplicate ratings being issued on, for example, the same new dwelling where the building regulations for England and Wales already require the house builder to provide a SAP rating as part of the compliance procedures. It would also take into account the changes in SAP ratings which derive from energy price changes and home improvements. To that extent it would be a helpful amendment. However, it would not avoid the possibility of different mortgage lenders obtaining ratings on the same property for their prospective mortgagors. That risk is particularly relevant to the existing stock, to which the majority of mortgage valuations relate.
The noble Lord, Lord Ezra, who, I know, has done a great deal of work, might therefore wish to reconsider whether Amendment No. 5 entirely meets the objectives he intends.
Lord Ezra: I thank the noble Lords, Lord Graham of Edmonton and Lord Cochrane of Cults, for their kind support for these amendments and for the Bill as it now stands. I was pleased to learn from the noble Baroness that she, too, felt that the amendments were helpful although she thought that Amendment No. 5 might go further. Nonetheless, she reported that the Council of Mortgage Lenders is still opposed even to these moderate and limited proposals. I am sorry to hear that. Building societies and other mortgage lenders have done a great deal to serve the community. They have an opportunity here to serve it even more. Although there have been some voluntary initiatives, as the noble Baroness said, they have been very limited.
The opportunity to give these rating surveys to 100,000, 200,000 or even 300,000 purchasers of properties who would be interested—they will have asked for the surveys to be made—is an opportunity not to be missed. Having shown their great interest in promoting energy rating surveys, having put them forward and worked them out, and the Environment Select Committee of another place having recommended a mandatory scheme, I am sorry that the Government should still be swayed by what I find largely inexplicable reservations on the part of the mortgage lenders. The noble Baroness did not give any reasons for their taking that view. It is merely that they apparently do not want to be bothered. I am sorry to hear that. It does not demonstrate the spirit which they should show to the community. I hope that the Bill can
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expeditiously complete its remaining stages in this place and that time will be found for it to go through another place.
Lord Ezra Lord Ezra moved Amendment No. 2:
Page 1, line 9, leave out ("house") and insert ("residential accommodation").
The noble Lord said: With this amendment I shall speak also to Amendment No. 6. This is purely a drafting amendment to change the word "house" to "residential accommodation" in order to widen the provision's scope. I trust that the Committee will agree these drafting amendments. I beg to move.
Lord Ezra Lord Ezra moved Amendments Nos. 3 to 6:
Page 1, line 11, leave out ("every") and insert ("the").
Page 1, line 11, at end insert—
("() A mortgage lender shall take reasonable steps to explain the benefits of and to promote the offer to carry out an energy rating survey pursuant to subsection (1) above.").
Page 1, line 13, at end insert—
("() This section shall not apply to any residential accommodation on which a mortgage lender has reasonable grounds for believing that an energy rating survey has been made within the last three years.").
Page 1, line 27, at end insert ("and "residential accommodation" has the same meaning as in the Home Energy Conservation Act 1995.").
Clause 1, as amended, agreed to.
Remaining clauses agreed to.
House resumed: Bill reported with amendments.

Takeover Bids: ECC Report
5.40 p.m.
Lord Hoffmann Lord Hoffmann rose to move, That this House takes note of the Report of the European Communities Committee on Takeover Bids (13th Report, Session 1995-96, HL Paper 100).
The noble and learned Lord said: My Lords, the report which I draw to the attention of the House concerns a matter of great importance to the City of London. The economic and legal conditions which exist in the United Kingdom are, on the whole, favourable to takeover bids. Shares in publicly listed companies tend to be fairly widely held. The law encourages transparency in share ownership. It discourages devices by which management sometimes tries to entrench itself. It regards the possibility of a takeover bid as a healthy market discipline. In those respects, the United Kingdom differs from almost all other member states of the European Union, which on the whole tend to be far more protective of the established management. The result is that the annual number of takeover bids for companies listed in the United Kingdom greatly exceeds those in all the other member states put together.
The fact that we have so many takeovers means that it is essential to have an effective system of regulation which will protect the interests of shareholders and ensure the integrity of the London securities market. A contested takeover is a battle fought for very high stakes and with every incentive to the parties on both sides to go to the limit in trying to win. Nothing would be more destructive of London's high reputation as a securities market than to allow unscrupulous bidders or defenders to be able to gain an advantage at the expense of ordinary shareholders.
For that purpose, London has evolved a remarkable system of self-regulation. The Takeover Panel, which was established in 1968, is an entirely voluntary body on which are represented all the bodies interested in the London securities market, whether as investors, as companies whose shares are traded there or as professionals. The panel is responsible for both the drafting and enforcement of the City code on takeovers and mergers. It is there to offer advice to parties involved in takeovers, it decides disputes and it imposes discipline. But—and this is perhaps the most remarkable feature of the London system—the panel has no legal status whatever. It exists simply because it is voluntarily accepted as a regulator by the London market. The ultimate sanction which it can impose is exclusion from that market; it can direct to its members that they should not deal with someone who has refused to accept the panel's authority. Since the panel's inception under the chairmanship, first, of Lord Shawcross, then the noble Lord, Lord Alexander of Weedon, and now Sir David Calcutt, it has gained very considerable experience and respect.
The fact that the panel operates outside the law gives it considerable advantages. It is not bound by the letter. It can interpret its own code according to its spirit and general principles. It can act swiftly and decisively. In a fast-moving takeover struggle those are very important matters. It also means that, unlike the position in the United States where takeover regulation is governed by the rules of law, there is very little scope for tactical litigation. By tactical litigation I mean legal proceedings which can have an effect merely by creating uncertainty and delay, irrespective of how the case is ultimately decided. Unfortunately, that is a feature of takeovers in the United States. There has been a suggestion that Americans are naturally more litigious, and that explanation has also been extended towards Australians. But I very much doubt whether national temperament makes much difference. What matters is that a lot of money is involved, and any businessman playing for high stakes who is told by his lawyers that he has nothing to lose and possibly something to gain by issuing a writ is going to go ahead and do so.
The draft directive which is the subject of the Select Committee's report springs from the entirely laudable desire on the part of the Commission to give other member states so far as possible the benefit of the system that they see operating in London. The representatives of the Commission who gave evidence to the committee were unstinting in their praise of the London Takeover Panel. In principle, it is not unreasonable to take the view that if similar rules were
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applied to takeover bids in all member states, that would encourage capital movements between the states of the Union.
Unfortunately, the position is rather more complicated. For one thing, the other member states did not want to be told to adopt the London principles. For example, one of the most important rules applied by the panel for the protection of shareholders is the mandatory bid. If someone has acquired more than 30 per cent. of the shares in a listed company, which is treated as moving control to him, the City code requires that he should make an offer for all the remaining shares at the highest price that he has paid during the past 12 months. That enables the other shareholders to decide that they will get out rather than stay under the new regime.
The Germans, for one, wanted none of that. They have their own complicated rules which they regard as sufficient in the economic culture of Germany for the protection of minority shareholders. So the Commission's first attempt at a draft in 1989 was regarded by other member states as being over-prescriptive and has since been watered down. Now it has come back with a very milk and water version which does no more than state some general principles about fairness to shareholders and, on the whole, leaves their implementation to the member states. To the satisfaction of the Germans, the mandatory bid, for example, has been dropped and member states can choose whatever they believe to be fair to minority shareholders in the circumstances of a change in control.
The result of those changes in the nature of the directive is that, in the opinion of the Select Committee, the directive is not likely to have much positive effect on improving the possibility of capital movements within the Community. The nature of the directive was such that it was not likely to produce much uniformity in the rules for takeover bids; so much was left to the choice of member states. But perhaps more important, the main reason why there is stickiness in the movement of capital between member states is not the difference in the takeover rules of those states but the structural institutional differences between them. It is because of the way in which, for example, shares in Germany are held by banks as compared to the way in which shares are held in this country. Those are the kind of issues which make the difference and they are not addressed by the draft directive at all.
On the other hand, from the point of view of the London system, the great change which the directive would bring about is that at least to some extent takeover control would have to become a matter of law. It would have to adhere to the principles laid down in the directive, and the interpretation of those principles and the question of whether our system complied with them would in the end be a matter for the European Court. The view of those who gave evidence to us and the view which was shared by the committee is that that is bound to increase the chances of tactical litigation and to destroy what is seen as one of the great advantages of the London system.
We had evidence from the Financial Law Panel. That is chaired by my noble and learned friend Lord Donaldson of Lymington. My noble and learned friend

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was sitting in the Court of Appeal when, in the leading case on the matter, he laid down the extent to which the courts would exercise any control over the activities of the Takeover Panel. My noble and learned friend takes the view, which is a very likely outcome, that English courts would, even if a new regime were instituted in compliance with the directive, endeavour as far as possible to leave the panel operating exactly as it is. I dare say that that is a result which an English court would strive to reach. But that does not take into account, first, the possibility that the way in which it is formulated to comply with the directive may not permit it; and, secondly and perhaps more importantly, that there is always the question of the European Court being the ultimate decision maker as to whether our rules comply with the directive.
Therefore, one has to balance, on the one hand, the advantages which are seen to be gained not only for this country but for the Community as a whole by such uniformity as the director will produce against the possible disadvantages which we see to our own system. It appeared to the committee that there was virtually nothing to be put in the balance on the positive side and the possibility of detriment on the negative side. For those reasons, the committee recommended that Her Majesty's Government should make whatever efforts they could in order to persuade other member states that the directive should not be adopted.
The present position, as I understand it, is that the matter is before the European Parliament for report but nothing yet has emerged and the matter is going rather slowly. I am not familiar with the rather Byzantine way that negotiations in the European Parliament seem to proceed in these matters, but I have the impression that that is a situation in which the other member states have very little to gain or lose one way or the other by the adoption of this directive. For example, the Germans indicated that they were extremely satisfied with it because it required them to do nothing at all.
The Irish legislature has decided that it will institute its own system of takeover control. Until now, it has allowed the London panel to regulate takeovers on the Irish market. That system of control will be statutory. I can quite understand why it will be statutory because with such a small market, the great sanction of the London panel—namely, being excluded from the facilities of the market—simply would not operate. It is only because we have the largest capital market in the Community that we are able to operate a system in the way in which we do.
Therefore, it seems to us that for London there is nothing to be gained and quite a lot to be lost. It would be ironic and tragic if the well-meaning efforts of the Commission to extend to others the benefits of the system which it sees operating in this country end only in damaging a system which it professes to admire. I beg to move.
Moved, That this House takes note of the Report of the European Communities Committee on Takeover Bids (13th Report, Session 1995-96, HL Paper 100).— (Lord Hoffmann.)
5.54 p.m.
Lord Haskel: My Lords, I read this report with great interest and I congratulate the committee on its work. But I must say that after reading the report, I was left with some concerns. Perhaps my concerns are shared partly by the committee but the report does not make that entirely clear.
My first concern is that the report seems to be written from the point of view of the City. The takeover code smoothly, efficiently and fairly facilitates the process of takeover but is it in the interests of our overall economy that takeovers should be quick and easy?
My second concern is that although the Takeover Panel is fine for London and suits the London share market, circumstances are different in other European financial centres. Bearing in mind those differences, is our system suitable for them?
I agree with the committee that it is obviously important that we have an efficient system by which companies are bought and sold. The noble and learned Lord, Lord Hoffmann, explained that in the Takeover Panel we have a system which ensures fair treatment for all shareholders, reasonable openness and transparency and a predictable timetable. There is the assurance that firms are not in play indefinitely so that their business suffers.
Looked at from the point of view of the City, that is absolutely right. But those outside the City have additional concerns. A system which is too easy attracts speculative bids. A quick takeover system requires short-term money only. Speed and efficiency are not the only considerations. The right balance is needed between making takeovers easy and fair and having enough sand in the system to encourage only serious bids and perhaps more agreed bids which is the practice in the rest of Europe.
I am sure that we can all think of examples of unnecessary and frivolous takeovers financed by short-term money which bring no benefit to anybody except those earning fees and commissions. We can also think of takeovers facilitated by the panel where the target company is left with such huge debts because of the short-term money that the business is unable to develop.
That brings me to my concern about contested bids. The reason that things are different in London from elsewhere is that, as the noble and learned Lord, Lord Hoffmann, told us, we have far more contested bids here. I believe that that is because on the Continent there are many major shareholders who are active in corporate governance. As a result, when mergers and takeovers are necessary, they are agreed between the parties. That is why, if we are to ask Europe to accept our code, there are changes which should be made to make it more acceptable to European circumstances.
First, there is obviously a conflict of interest where a company's advisers buy shares in that company during a bid. That is probably unnecessary during an agreed bid but in a contested bid it that can give rise to sharp practice and should be stopped. Secondly, advisers' fees

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should be disclosed. Again, that is an important factor during contested bids because the fees are often vastly inflated as a reward for success.
Another element which should make the takeover code more acceptable to European companies is the requirement to inform employees. Technically, employees in the UK have rights to information but those are sometimes overruled by Stock Exchange regulations which are designed to prevent insider trading. A way must be found to inform employees or their representatives of what is going on during a takeover.
I agree that the directive as drafted is perhaps too prescriptive for the UK. Here, statements such as "the board of an offeree company is to act in the interests of the company as a whole" are meaningless. In most European countries the directors have that responsibility in any event by virtue of company law. But under the European tradition, statements such as that are important as they lay down the principles to which law-abiding company directors try to keep. Perhaps we need to learn from each other.
I agree with the committee that there are advantages in a voluntary code. But a voluntary code has problems which need to be addressed. The difficulty with a voluntary code is that the sanctions are not necessarily on the quoted companies which are taking over or being taken over. They may be offshore and can ignore the code. As the noble and learned Lord, Lord Hoffmann, told us, the sanctions are on the financial institutions trading in London and on the individual shareholders. The threat of suspending an institution from the market is a sufficient sanction to make it toe the line. However, I cannot think of any recent suspension. It is more difficult to bring pressure to bear on the quoted company. The only sanction is to suspend its share quotations, but that only punishes individual shareholders who are in fact the innocent party whom we are trying to protect. Is that reasonable? Are they not entitled to some protection in law?
However, business must have something that works and, broadly, I think that our Takeover Panel works reasonably well. But I do not think that that means that we should impose it on everyone else. Indeed, I question the need to harmonise detailed takeover rules. Certainly there is a clear case for harmonising some basic principles such as the protection of minority shareholders and the creation of false markets. But different jurisdictions can take care of that in their own way. Takeover bids are a small part of the overall business picture, and how well a jurisdiction manages takeover bids is but one factor which a company takes into consideration when deciding where to raise capital and have its shares quoted.
Why should there not be competition between different regimes? Part of that competition will be the rules and the efficiency with which they operate. It is the service provided which will attract customers, plus the liquidity, the sources of capital, the variety of instruments, the underwriting and the protection of shareholders both large and small. In all these things London should do very well. However, London's charges are very high and a jurisdiction elsewhere in, say, Edinburgh or Amsterdam may provide the same service much more cheaply. Why should that not happen?
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It seems to me a logical extension of the activities of different parts of the Community to encourage investment in their own region by having local regimes. Those jurisdictions will have the advantage of local knowledge and local contacts and a deeper understanding of local businesses. Trading is now virtually screen based and paperless which should assist regional jurisdictions to develop.
The noble and learned Lord, Lord Hoffmann, mentioned Germany. The need for different jurisdictions may become apparent with the privatisation of Deutsche Telecom. It means that, for the first time, many people in Germany will become small shareholders and realise the need for the protection that they require as minority shareholders. On the other hand, trading in London is dominated by the big institutions. In fact, they could virtually do without an exchange. They can, and often do, trade among themselves because they have sufficient critical mass and liquidity to do so.
I see from press reports that proposals for a compulsory European directive are to be put forward to the Legal Affairs Committee on 27th and 28th January. Although we have in Britain developed a mature, efficient, transparent and effective system of dealing with takeover bids, I hope that the Minister will suggest some modifications to the code which will make contested bids more transparent and that he will be flexible enough to realise that "shareholder value" and financial engineering are not the only criteria and that there are disadvantages to voluntary codes.
Of course, it is important to move towards completing the single market, as this directive attempts to do, but I hope that the Minister will argue that the details of takeovers can be left to member states.
6.3 p.m.
Lord Bridges: My Lords, in speaking in this debate I should make it clear at the outset that I do so as an individual and not as a member of the Select Committee which prepared the report. I speak rather as someone who happens to have had several encounters with the takeover and merger of companies, both as an official of the Government dealing with international economic matters in the past and, more recently, as a non-executive director of companies which were the target of hostile bids.
The general point that I seek to make is that there is, or I think should be, a close relationship between the policy and law relating to mergers on the one hand and, on the other, competition policy. That is not the case in this country, as is correctly observed in the first paragraph of the report which we are debating.
The report also makes clear that we do not have much law on the takeover of companies. What we do have is an umpire, presiding over the Takeover Panel, operating from the Stock Exchange building, whose activities are governed by a set of informal rules. Indeed, I have heard it said—although I do not know with what truth—that one of the purposes of the establishment of the panel in the first instance was to exclude the operation of law from this area so far as possible, and to enable bids for companies to be handled in a clear, speedy and

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straightforward manner. The procedures are certainly operated informally, on the basis of the experience, honesty and common sense of the investment banking community of London which makes its living out of bids and mergers. By contrast, we do have a statute governing competition policy, in the Restrictive Trade Practices Act 1976 and a statutory body in the Monopolies and Mergers Commission which advises the Secretary of State, who takes the final decisions on such matters.
I believe that it is instructive to look for a moment at what other countries do. There are two important industrialised countries which have coherent systems in this area: the United States and Germany. The American system is based on statute law, supervised by the Anti-Trust Division of the Department of Justice. It covers both domestic economic activity and, in the well-known American constitutional phrase:
"The Foreign commerce of the United States".
This phrase is broadly interpreted by the Department of Justice and the American courts. Prima facie, any concentration of economic activity which leads to domination of a particular market sector (interpreted as a 30 per cent. share of the market sector in question), requires investigation. Private interests damaged by such domination may sue for damages, with penalties up to three times the level of the damage suffered. These provisions of American law have in the past caused difficulties for other states, including our own, and led to the Protection of Trading Interests Act 1980, recently invoked for quite different reasons in defence of our commercial interests threatened by the Helms-Burton law.
The point that I seek to make here is that the American practice does have the merit of looking at all aspects of competition policy, and that it does so on the basis of statute law available to all who seek a remedy from the abuse of the market. In particular, it enables recourse to the courts to determine the delineation and definition of the market sector to ensure that this has been accurately determined. I believe that that is a crucial point in disputes about competition policy. I personally prefer a procedure which is readily subject to judicial review, rather than determination by a Minister for political reasons.
The German position is similar to the American; and, indeed, derives from it. Germany has in the Bundeskartellamt an official agency which acts to defend the economy from monopolies and anti-competitive practices generally. It is relevant that the Bundeskartellamt, and the Bundesbank, are the fruits of American policy in the era of the Allied High Commission for Germany, in the years leading up to the establishment of the Federal German Republic.
The European Commission has not yet decided what definitive form its competition policy should take. Germany would like to see a European body, like the Kartellamt, presumably located within the Commission and operating under its auspices. There is some opposition to this idea, and we in this country are not enthusiastic about it. We point to the success of our
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informal arrangements with the Takeover Panel in the City, and we are reluctant to transfer power on monopolies from the Department of Trade to the Commission. So instead, Commission initiatives are intended to enlarge their competence in this area gradually, perhaps by specifying a level of turnover of a combined enterprise following a merger which would require prior scrutiny. British Governments have not been supportive of such proposals in the past.
I suggest that we need to take a wider view and should try to look at mergers and competition policy together, rather than separate them deliberately as we do at present. We should also be a little more self-critical. In spite of what the Minister's brief might say, not everything in our garden is lovely. The informal rules of the Takeover Panel may work reasonably well for much of the time, but the system is not always fair. A sharp predator can sometimes outwit the gentlemen on the panel, and shareholders in the target company cannot rely on law to defend their rights and interests; the law may be silent, slow or even ineffective. I refer to an example based on experience. A company watching the transfer of its shares on its register may well suspect that a concert party is privily building up a stake. So the company secretary is invited to send off a raft of letters using the provisions of the Companies Act requiring disclosure of the beneficial owner. The concert party may well be successful in delaying the reply of such letters beyond the crucial phases of the financial battle, for example by registering shares in the name of nominee holdings in branches of foreign banks effectively outside the reach of our jurisdiction. This is an area where we have a law, but it may be readily circumvented.
Also, we must bear in mind—this is a rather more controversial observation—the powers in the hands of the Minister in charge of the Department of Trade at any given time in taking decisions on the advice tendered by the Director of Fair Trading or by the Monopolies and Mergers Commission. I am sure I shall defer to the advice of the noble Lord, Lord Borrie, who speaks on these matters with much greater authority than I, but it is at least questionable whether political control in the last phase of a competition policy case is always in the interests of the national economy.
I hope these remarks will illustrate that the Commission's proposals discussed in the report are only one phase in a longer story with a wider setting. It may be of interest to mention one current case. This concerns the future of the platinum mining interests owned by the British company Lonrho, which intends to sell them to a South African company, the Anglo-American Corporation. The consequence would be that the latter company would control, I believe, as much as 30 per cent. of the world's supply of platinum. As this material is now used extensively in Europe and elsewhere as the essential ingredient in controlling car exhausts, it is not surprising that Commissioner van Miert wishes to investigate the consequences of this merger. It seems to me that he is justified in looking into this matter which recognises the point I made at the outset; namely, the essential link between mergers and

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competition policy. I hope that the Government will be even-handed in regarding the Commission's attitude on this particular matter.
In the longer term I hope that European policy may be encouraged to develop gradually on the basis of common principles—the approach it has adopted in this draft directive—and that this aspect, at least, of what it has proposed to us may be given a cautious welcome.
6.13 p.m.
Lord Stoddart of Swindon: My Lords, I wish first to congratulate the noble and learned Lord, Lord Hoffmann, not only upon his thorough introduction of the report tonight but also upon the expertise he brought to Sub-Committee E's inquiry and the skill with which he guided it. I think it is the first investigation conducted by Sub-Committee E that I have sat through as a full member. Having heard all the evidence, I believe that the Sub-Committee, and indeed the Select Committee, reached the one possible conclusion in the light of that evidence.
What I wondered was why on earth the Commission felt the need to bring forward any directive at all in the first place. As far as I could see, there was no real demand from any country for a directive on takeover bids, certainly not from this country. As far as I could see, no serious problems had arisen or had been reported from any other country. We also discovered that the great majority of takeovers took place in the United Kingdom. In any event we were expert in the matter and the problem, if any existed at all, was bound to exist in this country because most takeover activity—more than in all the other member states put together—occurs in the United Kingdom.
As the noble and learned Lord, Lord Hoffmann, said, the Commission praised the British system and said it was a marvellous system and such a good system that it wished to impose it on every other member state in the Community. That was flattering. Good old Britain has something we can boast about and that we can impose on other people. But of course there was a flaw because if that was done through this proposed directive, the British system, which is non-statutory at present, would become statutory and could therefore become subject to litigation in British courts and, ultimately, the European Court of Justice.
Therefore the British system, which has worked well for over 25 years, will, under this directive, be altered in a way that could destroy it. Neither I nor the committee thought that was a good thing. For no reason at all, except, as far as I can see—I speak only for myself on this matter—the insane drive towards harmonisation, our system of dealing with takeovers will be under extreme threat. Because of that drive towards harmonisation, we are in danger of destroying something which has worked well over a long period of time. Will this directive be the end of the matter—that is the question we must ask ourselves—or will it be built upon? Is there more to come?
During the questioning of the Commission witnesses I referred to possible trade union interest in the matter. I have been a trade unionist all my life and therefore
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I was almost bound to refer to that matter. The witnesses seemed a little coy about my questions but I now understand that MEPs are already set to graft onto the draft directive before us legally enforceable rights for employees which might well destroy the takeover ethos in the United Kingdom, as well as the system of control. I have not examined that point and therefore I do not know whether or not it would be a good thing. What I seek to indicate is that the directive which we have before us may not be the end of the matter.
According to the committee, the directive is not a good one and was not a good idea in the first place. Therefore we should be extremely careful. Under the circumstances we must ask whether the proposed directive is merely a cloak for some more far-reaching policy to be revealed later, a case once again of European Union creeping competence. If the matter were to be decided by unanimity, it might not matter so much. I understand that the Government gave evidence to the effect that they are against the directive. But unfortunately the matter will be decided not by unanimity but by qualified majority. Whether or not we have a directive depends not on what the Government, Parliament or the Opposition think but on whether the Government can muster a blocking minority of 26 votes in the Council. If they cannot, then it does not matter what the Government believe, what the Select Committee recommends, or whether the House accepts the recommendation. The Commons could declare that it was unanimously opposed to it but it would make no difference. The directive would have to be implemented. The Government could refuse to put a Bill before Parliament; and indeed I would recommend that course to them. Whether they will accept that recommendation is another matter. If they put such a Bill forward, Parliament could reject it. But then we should be taken to the European Court of Justice, which would then tell Parliament that it was in breach of Community law, impose a fine, and insist on the legislation being enacted.
That is the nonsensical and completely unacceptable and undemocratic state of affairs which exists in this country at present. When we see things of this sort, I wonder how much longer people will put up with them. What on earth is the use of electing MPs who are told what they cannot do or must do by a supranational junta over which they have no control and indeed cannot sack?
My views on the European Union are well known. But the Select Committee and Sub-committee E on which I have the honour and privilege to serve have examined the problem of takeovers and the directive very thoroughly. The committee has brought forward an excellent report and recommendation which I sincerely hope that the Government will take seriously. I hope that they will accept that recommendation and will fight for it.
6.22 p.m.
Baroness Turner of Camden: My Lords, I welcome the opportunity to participate in the debate on the report by the Select Committee on the European Communities.

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It is a very comprehensive report and makes reference to previous attempts at a directive—attempts which apparently failed to find an acceptable formula.
As has been said, the original draft did not give sufficient protection to minority shareholders, among other things. However, it is clear that the present draft has attempted to take full account of UK practice and procedures of which the Commission apparently approves, as we have heard tonight. But it would seem that the committee still does not view the present draft with favour and does not think that the proposals in regard to the protection of minority shareholders are adequate. It has a number of other criticisms which have been made today. It does not favour a directive at all, preferring to rely on present UK practice.
I am not happy about the draft directive for other reasons—reasons which only the TUC seems to have emphasised among those who gave evidence to the committee. However, I believe that there is a good basis and a reason for having a directive. I believe very strongly that the interests of employees should have some attention when mergers and takeovers are under consideration. It is true that the present UK code makes reference to such interests but, as we know, the code is not legally enforceable.
I am reminded of the fact that when I first came to your Lordships' House some 10 years' ago I attempted to introduce a Private Member's Bill entitled the Takeovers and Mergers Employee Protection Bill. The Bill made no progress, although a number of noble Lords, including the noble and learned Lord, Lord Denning, spoke in favour of it. I was prompted by the fact that 1986 had been a record year for takeovers. Indeed, there had been reference to what was described as "merger mania". The livelihoods of about 500,000 employees had been bound up in such deals. My intention at the time was not to raise the whole matter of mergers and takeovers—sometimes they may have been beneficial but at other times not—but to try to ensure that there was some protection for those involved.
I drew attention to the fact that in many other EU countries there was at least some provision for consultative rights of employees and their unions. My Bill provided for the consideration of other factors rather than simply that of competitive advantage. It wrote in a requirement to consider the interests of employees. As indicated in the current report, the TUPE regulations, introduced in 1981, do not give very much by way of protection for employees in takeover and merger situations in the UK. It is true that some time after 1987 merger and takeover activity seemed to diminish. However, more recently there has been a revival of such activity. In 1987 it was largely manufacturing, retailing and food and drink industries that were affected. Now we are seeing a great deal of activity in the financial services industries.
Last year there were several major mergers including one which was aimed at creating an insurance giant capable of competing effectively with major players in the EU. However, the first the employees heard of this major development was an announcement on the radio
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at breakfast time, accompanied by the kind of statement that has become almost obligatory when any merger or takeover is announced—the loss of about 5,000 jobs. One can imagine the effect that that had on the employees who heard it.
When the unions concern raised the matter sharply with management, they were told that Stock Exchange rules prevented disclosure. My noble friend Lord Haskel made reference to that. I have examined the rules and, frankly, I do not read them in that way. The company involved must of course be satisfied that the recipients of advance information will not deal in the company's securities before the relevant information has been made available to the public. But I cannot see that some consultation with the representatives of employees is ruled out. I have had discussions with senior management in the company concerned and it is clear that it sincerely believes that Stock Exchange rules prevented it from having any prior consultation with the employees or their representatives. However, if a directive made it clear that there should be appropriate advance consultation, this would presumably override the Stock Exchange rules.
The TUC complained that the 1989 directive contained no provision for effective procedures for informing and consulting employees. The present draft is even weaker. There seems to be no reference to employees at all, it apparently being thought sufficient to leave their rights on consultation and information to individual member states' arrangements. I do not believe that this is acceptable or sufficient. As I indicated, employees are deeply affected by mergers and takeovers. Whole lives can be disrupted. We have already seen how changes in the labour market resulting in greater insecurity have had an unfortunate spin-off into society generally. These are serious considerations and should not be overlooked in a directive concerned with an issue as important as takeover bids which can have cross-border implications.
The TUC has already drawn attention to the European works councils directive which gives legal rights to information and consultation for employees in countries which have signed up to the social chapter. Increasingly, companies in the UK which trade across the EU have realised that irrespective of the UK opt-out they cannot stand aside and must therefore apply the works council directive to employees in the UK since they are having to do so for employees elsewhere in the EU.
In the circumstances I am disappointed that the report of the committee pays relatively little attention to the position of employees in takeover situations although I note that my noble friend Lord Stoddart raised the issue on a number of occasions during sessions when the committee took oral evidence.
6.29 p.m.
Lord Spens: My Lords, it is a pleasure to talk about a subject that has been my living for the past 30 years or so. Last weekend I did a quick run through my books to see how many takeovers I had been involved in. The number was a staggering 370 plus, mostly for very large companies, sometimes for very small ones. Sometimes

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I was on the receiving end, but mostly I was on the hostile or bidder's end. During those 370 takeover bids I went in front of a full panel some 30 times and in front of a panel executive probably over 100 times. In the early 1970s I was responsible for drafting some of the takeover code. I have changed the takeover code; I have worked with people who developed the takeover code in its history. I therefore know a considerable amount about it.
Bearing in mind how little the noble Lord, Lord Bridges, said, I would point out that the objective of the Takeover Panel has very little to do with the equality of shareholders. It has absolutely everything to do with keeping the money out of the lawyers' hands and in the hands of the City institutions. Last year's fees alone amounted to £1.1 billion for the banks and institutions. One takeover bid, to quote from memory, namely the Granada-Forte bid, cost £200 million in fees. That is what the Takeover Panel is about: protecting that money.
The panel's strengths come from two accidents. One is a structural accident in that, in most cases, overseas countries do not have registered shares—most of their shares are bearer shares. If you do not know who your shareholders are, it is almost impossible to protect them. In this country virtually every share is registered; therefore control can be exercised. The second point is that, today, the panel operates on the basis of what in real terms may be termed "hidden precedent". Up until "Big Bang", the Takeover Panel was supported by patrician partnerships in the City which made sure that it worked. When Big Bang came along, people felt that that would be the end of the Takeover Panel because the big battalions, the large American, German and Swiss banks, could run rings round it simply through muscle. But it had developed its doctrine of hidden precedent. Over the years it had made many rulings that had not been divulged to the general public. As time went on, that approach became stronger and stronger. Nowadays, a takeover cannot take place without consultation with the Takeover Panel on virtually every aspect and every day of your life in that business. It gives it enormous strength if you do not know what the goalposts are through which you are trying to shoot the ball.
Perhaps I may illustrate my first point about the role of the Takeover Panel and the purpose for which it was set up. My example concerns a Takeover Panel meeting which took place in the summer of 1985, when Big Bang had just occurred and we could see how it happened. It was the takeover of Arthur Bell and Sons, the Scottish whisky company, by a company called Guinness. There was nothing unusual about it, except that it was the second largest hostile takeover ever to have taken place. What was unusual was that the merchant bank involved, Morgan Grenfell, was, or so Arthur Bell thought, adviser to Arthur Bell. One day the company woke up to find on its doorstep the hostile bid from a merchant bank which, up until that morning, the company had thought was acting on its behalf.
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I told the company that there were two alternatives: it could go to law to sort the matter out, or it could go to the Takeover Panel. The company listened to my advice; and I was leant on considerably by the Takeover Panel. Eventually it went to the Takeover Panel. It was arguably the worst decision that I have ever made in my life.
What happened in the Takeover Panel was this. Once the arguments had been put forward and it became clear that on one side of the fence was £6 million in fees to underwriters, which was likely to be repeated in a second offer (£12 million in total) and on the other side a mere £20,000 of annual fees from Bells to Morgan Grenfell, the decision was taken that Morgan Grenfell would be allowed to stay in its position as adviser to Guinness.
That decision was announced in front of Ernest Saunders by Sir Jasper Hollom, the deputy governor of the Bank of England (it was given that sort of weight) and was arguably the reason why Ernest Saunders thought that he could walk on water. He won that battle so convincingly that I do not believe there is any argument that from then onwards he believed he could go on to do what he did in Distillers. In fact, as we now know, that was practised in Bells. He won the takeover bid. Despite my repeated visits, the panel would do nothing about his indemnities, etc. It bears out what I said: the Takeover Panel is all about fees and very little about anything else. It happens to be expedient to make sure that, on the whole, shareholders are kept quiet and happy.
I also have considerable experience, not surprisingly given what I just said, in how the Takeover Panel is interpreted by the criminal law. The Guinness-Distillers battle ended up in the courts. It was largely the breach of the takeover code, leading to a false market, which formed the basis of the trials for all the defendants.
In the first Guinness trial, in which I was not involved, the trial judge ruled that the Takeover Panel code was for interpretation by the trial judge not for interpretation by the jury or by experts. That was a very surprising ruling. It enabled him to go on to rule on what was meant by "acting in concert". That was a very important part of the Guinness trials.
The judge ruled as follows: anyone who receives the success fee, whether disclosed or undisclosed, is deemed to be acting in concert with either the bidder or the offeree and must therefore disclose his share transactions. It was an astonishing ruling. By that ruling the judge put all those core underwriters who had success fees on the outcome of the bid into concert, which the Takeover Panel had been designed to exclude.
The law of the land today, as I understand it, is that anyone acting in concert who fails to disclose his transactions effectively creates a criminal offence. As underwriters move more and more under pressure from this Government into reducing their fees and increasing the success element of those fees, it is clear that most underwriters should by law disclose all their transactions. Of course that does not happen—the City is more sensible—but it is the law at present.

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The second point that had to be made in order to bring about the convictions was the rule that the "false market" definition in the Stock Exchange rule book was wrong. The Stock Exchange definition is very easy. It is:
"A 'false market' is defined as a market in which a movement of the price of a share is brought about or sought to be brought about by contrived factors, whether by the operation of buyers and sellers acting in collaboration with each other or otherwise, calculated to create a movement of price which is not justified by assets, earnings or prospects".
That is the only definition that exists of a false market, apart from the 1987 definition from the Financial Services Act which is equally bad. It is the only definition which people such as Anthony Parnes, who was sent to gaol, had to go on. This is how the judge dealt with it. On day 91 of the first Guinness trial, he said:
"If it [the definition] stopped after the third line, it would seem to me to be quite a good definition. The whole seven lines seem to me to be rather a bad definition".
He went on:
"Well, I have been circumspect, and it seems to me to be, as a definition of a false market, a nonsense".
That is the existing and present definition. It is still in the Stock Exchange rule book. Yet a trial judge has ruled that it is nonsense. He went on to rule that a false market is indeed something else.
In the second trial we thought that we would challenge that decision by an interlocutory appeal. That can be done in cases of serious fraud. We went to the Court of Appeal Criminal Division. That was a foolish thing to do because four men were already in gaol, three were in gaol at the time of the interlocutory appeal. If the ruling had gone in our favour then the whole of the first trial would have been a sham. The Deputy Lord Chief Justice, Lord Justice Watkins VC, ruled as follows:
"As to the present case, our view is that the Code sufficiently resembles legislation as to be likewise regarded as demanding construction of its provisions by a judge. Moreover, the Code is a consensual agreement between affected parties with penal consequences".
So far as I can see, the judge effectively put the rules of cricket, the Football Association and the rules of virtually every club where penalties are attached to the breaking of rules into the position of having to be interpreted by a judge. We cannot do that. However, once the takeover code rules get onto the statute book in any form, they will be interpreted by a judge far outside the market. Before we go down that route, we should think carefully because that is not what it is all about.
A parallel exists with English law which people do not talk about. It is the European Convention on Human Rights. That is not included in our law but it comes up time and time again. We need to include it in some form or another, or at least accept that it exists. Not surprisingly, the decision of the European Court of Human Rights on the DTI transcripts regarding Mr. Ernest Saunders has had its result and the first Guinness trial was declared to be unfair.
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That case also went to the Court of Appeal in a case brought by my co-defendant. The judge, the same Lord Justice Watkins, said:
"The present case is, as we have said, concerned with extremely astute, professional men who have been advised at one time or another by very experienced City solicitors. There was, in our judgment, sound reason for admitting the so-called confessions having regard to the relevant legislation which Parliament has deliberately enacted, albeit that that may appear to tend towards unfairness especially when set against the relevant proceedings in the 1984 Act".
Lord Justice Watkins was talking about the Police and Criminal Evidence Act 1984, under which the matters would have been excluded, as they would have been excluded under Section 2 of the Criminal Justice Act 1987. But if the transcripts were DTI transcripts, they could be entered.
That is the problem we have when senior judges become involved in the interpretation of commercial transactions on a daily basis. At the moment the Stock Exchange rule book has not been altered to reflect what I think is the law—that the rule book is nonsense and that the stock market operates on a basis for which the goal posts may well one day, if the matter goes to a criminal court, be found to be different from the rules with which the market has been living. I believe that we should leave the Takeover Panel. It has been stunningly successful.
6.43 p.m.
Lord Borrie: My Lords, this report was published last July. I was not then a member of the appropriate sub-committee of the Select Committee on the European Communities, therefore it is entirely proper for me to congratulate not only the noble and learned chairman but also all the members on the excellence, clarity and thoroughness of the report.
I began to get to know the work of the City Takeover Panel some 20 years ago when I became Director General of Fair Trading. We had a close working relationship because the panel and the Office of Fair Trading had then and have today complementary roles in relation to both friendly and hostile bids for United Kingdom companies. The Office of Fair Trading is concerned to advise Ministers, after due inquiry, whether a bid should be referred to the Monopolies and Mergers Commission for a more thorough inquiry. It would ascertain whether the bid, if successful, would adversely affect competition or the public interest in some other way.
The panel, however, is concerned with fairness between shareholders, with transparency and information to be provided to shareholders and with the maintenance of orderly markets in the shares of the companies involved. In other words, the panel is concerned not with whether takeovers and mergers are a good thing, either in general or in particular, but simply with the mechanics, the ways and means.
Important though they are, the OFT and the panel do two separate jobs. With respect to the noble Lord, Lord Bridges, who spoke earlier, I think that those jobs are separate. For reasons that I wish to develop, I do not believe that it would be a good idea if they were brought

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together in one body on a statutory basis. At present, the Office of Fair Trading and the panel are entirely different constitutionally because the Office of Fair Trading is a creature of statute and, as the noble and learned Lord, Lord Hoffmann, said, the panel is an entirely voluntary and self-regulatory body, created by the City's financial institutions. In the graphic words of the noble and learned Lord, Lord Donaldson of Lymington, when he was sitting in a judicial capacity in the leading case to which the noble and learned Lord, Lord Hoffmann, referred—the Datafin case—the panel performs its vital functions,
"without visible means of legal support".
On the face of it, looking at such matters, many of us may think that self-regulation suggests a soft option. One often believes that because it seems to be a device or protection against outside involvement. State regulation, with stronger penalties and sanctions, is perceived as more effective. But it seems to me sensible in this field, as in others, to be pragmatic. When we have a body which has been operating for nearly 30 years, as in the case of the City Takeover Panel and its code, we ought to consider whether the two function in a way which has been effective and successful. As the Select Committee report indicates, they have performed extremely effectively, expeditiously and decisively in individual cases, so that the management of companies is not left in a state of limbo and uncertainty for any length of time. That would be undesirable for the customers and for the company and, I say to noble Lords who spoke earlier, to the employees of the companies concerned. It is not desirable that there should be uncertainty for any period.
There are three reasons why the Takeover Panel and its code have been successful. The first is the strength and authority of its successive chairmen and directors general. Secondly, the effectiveness of its rulings has been underpinned by a widely based membership who provide the financial services in the City. The third reason is the flexibility and freedom from judicial intervention, at any rate during the course of the bid. Perhaps I may say a little more about each of those.
As the noble and learned Lord, Lord Hoffmann, mentioned, Lord Shawcross was chairman of the panel for some 10 years during the 1970s. Those who came before him were as much in awe of him as the Nazi leaders who had to face his cross-examination at Nuremberg some years earlier. Among later chairmen have been the noble Lord, Lord Alexander of Weedon, and the present chairman, Sir David Calcutt. They have maintained that authority and respect which was created in the early years. It has not been mentioned so far this evening but most valuable is that the directors general who have the more day-to-day executive responsibility have been men and, in one case, a woman from merchant banks, usually for two years at a time. They were people with current experience in the tactics and manoeuvrings of takeover battles or, in the phrase used in an editorial in the Financial Times today,
"the frequently poisonous sport of bids and deals".
That is the way the newspaper chose to put it this morning.
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As to the effectiveness of panel rulings, it is essentially based on ostracism by City institutions of those who disobey. Since the Financial Services Act 1986, panel rulings have become legally effective because the Securities and Investments Board has imposed a "cold shoulder" rule whereby any authorised provider of financial services is barred from acting for anyone who does not comply with the takeover code.
The third reason for the success of the panel over nearly 30 years is its flexibility and freedom from judicial intervention. The code has been amended many times. The noble Lord, Lord Spens, mentioned that he had had a hand in that. But, in any case, the panel is more concerned with the spirit of the code than the letter, and can freely relax the full requirements of the code.
The panel's rulings are that much more effective and certain because, since the Court of Appeal's decision in the Datafin case 10 years ago, the courts will not interfere during the course of a takeover bid. The Court of Appeal accepted that the panel is subject to judicial review but, recognising the risks, the inconvenience and the undesirability of tactical litigation, it ruled that contemporary decisions of the panel should be effective and any court order against the panel should apply only to future cases coming before it.
In the recent case, about which some of your Lordships may have read, of the bid by the US company Cal Energy for Northern Electric, the panel's decisions to allow the purchase by Northern Electric's advisers of shares in the company, but then to extend the closing date for the bid, were highly controversial. My noble friend Lord Haskel is worried about the first aspect of that part of the ruling. But the speed of the panel's decision-making and of the operation of its internal appeal mechanism ensured a minimum period of uncertainty. If litigation in the courts had been feasible, a few days of uncertainty would have turned into weeks, if not months. And as the noble and learned Lord, Lord Hoffman, said, a principal objection of the Select Committee to the EU's proposals to put the panel and its code on to a statutory footing is that it carries the risk of increased litigation.
In the 1980s, litigation in the course of a contested takeover bid became quite common. It was not litigation which affected the Takeover Panel, but there were several occasions when the Office of Fair Trading, the Monopolies and Mergers Commission and the Secretary of State for Trade and Industry, all acting under statutory powers, were the subject of applications for judicial review. As judicial review was developing at that time, it is hardly surprising because, in a keenly fought battle for a company, an application for judicial review was simply another battlefield on which it seemed worth while to fight. I recall that none of the applications actually succeeded. They had little merit, particularly because of the very wide discretion given to the statutory bodies concerned. Admittedly, I might be biased in that view, but they could create a good deal of delay and uncertainty as to the outcome of the bid. That was highly undesirable.

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It surely cannot be doubted that, if the non-statutory self-regulatory system currently run by the City Takeover Panel is replaced by a system in which the panel owes its authority to statute, litigation on a whole range of grounds would be a tactic worth pursuing, not only in the UK courts but also, on reference from the UK courts to the European Court of Justice in Luxembourg.
Article 4(5) of the directive enables the courts of a member state to continue not to intervene during the course of a takeover bid. However, it also says that any injured party must enjoy "adequate remedies" and the Select Committee is rightly anxious that it is not at all clear whether the remedy of an appeal and the remedy of compensation are alternative options that a member state may provide.
I am, in any case, anxious that Article 4(5) would not effectively ensure no judicial intervention during the course of the bid. I say that because the Court of Appeal in Datafin placed much stress on the panel presently combining the roles of legislator, interpreter of its own rules and investigator of alleged breaches. In those circumstances, there was little scope for a court to say that rules had been made that were ultra vires or that the panel had misconstrued the rules. A court may take a different attitude, even during the course of a bid, if rules for takeovers are put on a statutory footing and they become legal rules; and if, for example, an argument is raised that a rule is incompatible with a provision in the directive. Indeed, a UK court may feel obliged to refer the matter to the European Court of Justice for a final view.
The conclusion of the Select Committee's report is that,
"The UK has an effective and efficient system for the regulation of takeovers. That should not be put at risk without substantial and clearly identifiable benefits. We do not believe that the Commission has made out its case".
It could not be put more clearly than that.
6.56 p.m.
Viscount Chandos: My Lords, I join other noble Lords in thanking the noble and learned Lord, Lord Hoffmann, for his interesting and penetrating introduction to the debate today and for his chairmanship of the sub-committee that produced the report. The noble and learned Lord retired from the board of an arts organisation shortly before I was invited to join it a year or two ago. Just the other day it was suggested by Mr. David Mellor that it was an arts organisation whose board had eyes larger than its brains. I suspect that if the noble and learned Lord had remained a member of that board, then even Mr. Mellor would not have had the temerity to suggest that.
I should declare an interest as a director of a small investment banking firm regulated by the Securities and Futures Authority and an occasional practitioner of the art of takeovers. I regard myself very much as a general practitioner rather than a specialist or even a professor of medicine in this field and I rely often on the advice of my colleagues and other professional advisers.
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I am struck by the fact that many of the people I regard as specialists, even professors of medicine, in this field are, like myself, hereditary Members of your Lordships' House. I regret that there are not more of them from the Benches opposite available tonight to give us the benefit of their wisdom and experience and to support the arguments advanced by the Front Bench of the Government that the hereditary component in this House is a useful and constructive part of it.
Like my noble friend Lord Haskel, I came away from reading the report—notwithstanding my admiration for the noble and learned Lord, the chairman—a little uneasy with the tone of smugness on the part of the UK institutions that gave evidence about the workings of the system. Of course, the equity markets in the United Kingdom are significantly larger and more highly developed than those of the other European countries. It is not surprising therefore that the development of the Takeover Panel since its establishment in 1968 and the evolution of a sophisticated and wide-ranging code of rules should have occurred in this country a decade or two in advance, in many cases, of the practice in other European countries. However, we should be careful to guard against complacency, in the way that my noble friend Lord Haskel described so clearly. One sentence in particular of the brief provided by the Takeover Panel might surprise any layman. It states:
"In particular, it is vital that in the interests of shareholders our flexibility in applying or disapplying rules and principles must be preserved without risk of challenge in the courts".
In declaring my interest as a practitioner, I could perhaps have declared my interest that I am not a lawyer. While very often I regret that, I find it helpful when I feel, as I do, that the evils of litigation and the law are sometimes overstated. I feel at least that I do not have an interest in that respect.
Over the past few years, since the enactment of the Financial Services Act, the question marks about the appropriateness of a fundamentally self-regulatory, or at least semi self-regulatory, system of financial regulation have grown. The Takeover Panel, notwithstanding some of my comments, currently represents the best continuing example of financial self-regulation. Like other noble Lords, I am loath to do anything that would jeopardise that position. On the other hand, I still do not believe that the evidence presented to the committee and some of the conclusions of the committee necessarily prove that the balance of cost and benefit of accepting a directive of the kind proposed by the European Commission, amended in the way a number of noble Lords have suggested today, would seriously jeopardise the workings of the Takeover Panel as it operates at the moment.
For instance, I found the evidence of the Financial Law Panel very striking. Of all the bodies that gave evidence, it was the one that was most cogent and positive in support of the proposed directive. There are

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two useful quotations from its evidence. In paragraph 8 the panel suggests:
"The question is not whether the matters dealt with in the Directive are capable of being dealt with at a domestic level. Clearly, they are. The issue is whether it is more efficient to address the questions at Community level, as part of the move to create a consistent and open market".
It goes on to say in a subsequent paragraph:
"Nevertheless, we believe that the adoption of a common statement of principles applicable to takeover procedures throughout the European Union, which emphasises aspects consistent with, and already enshrined in, UK practice is a development to be welcomed".
The question has to be the relative costs and benefits of having the proposed directive apply as an umbrella over the operations of the Takeover Panel in the United Kingdom. I was struck that many of the critics of the directive appeared unable to decide whether they dislike the directive because it seems likely to interfere with the principles of subsidiarity and the national regulation of takeovers or because it does not achieve any significant harmonisation across the different member states of the European Union. At the heart of the potential costs regularly comes up the question of tactical litigation. I listened with interest to my noble friend Lord Borrie on that subject and remain unconvinced that the view of the Financial Law Panel, which clearly differs from that of the Takeover Panel itself, is wrong. It seems to me that the cultural and other differences between the United Kingdom and other countries such as the US are at least as much factors in determining the incidence of tactical litigation in such matters.
In thinking about the benefits that might be achieved through the introduction of the directive I was struck again by evidence given by the Institutional Fund Managers' Association, which reads as follows:
"With our eyes open, we have chosen to invest nearly 10 per cent, of our customers' pension assets in countries where the writ of the UK Takeover Code does not run. But we also have invested more than half of their investments in the UK, where it does. We are very loath to allow any interference with a system we know works well, just for the sake of European harmony. If individual European countries wish to introduce their own codes, statutory or voluntary, so be it".
I do not agree with that conclusion, but I believe that the potential benefits are clear to see.
We are used to being caught unawares by a financial crisis or scandal. We are used to believing that the self-regulatory system in the UK is the best possible protection and waking up the following morning to find that there has been another major problem. As investment by institutions and individuals increases in the European equity markets, there has to be a very strong case for being willing to trade off a degree of the apparent autonomy of the UK Takeover Panel in exchange for our contribution to a European initiative to achieve minimum standards throughout Europe.
Reading the evidence, therefore, and trying to weigh the quality in some cases and not just the quantity, I still cannot but help feel surprised that the Select Committee's report felt the issue was quite so black and white. The proposed directive is clearly not perfect but I believe that there is a stronger case for the involvement of the European Commission in creating a framework for
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European takeover regulation. I feel also that fashionable Euro-scepticism may have been a factor in influencing the tone and weight of some of the evidence, although I am sure it did not affect the deliberations of the committee.
7.8 p.m.
Lord Pearson of Rannoch: My Lords, I join other noble Lords in congratulating the noble and learned Lord, Lord Hoffmann, and his committee on this excellent report and on the lucidity with which he introduced it this evening. I was interested to hear the noble and learned Lord say that the Germans do not mind this directive because they do not feel they need to do anything. I could not help wondering when he said that whether perhaps there was another reason for German acquiescence in this directive, which might be that much of the business which is at the moment handled by the City of London might, I suppose, find its way to Frankfurt and other German cities if the directive comes into being.
I wish to take issue with only two inferences in this excellent report. These are, first, that the draft directive does not meet the Edinburgh guidelines on subsidiarity; and, secondly, that those guidelines might in some way protect us from this draft directive. Your Lordships will remember that at the time of our debates on the Maastricht Treaty in 1993, a number of us felt that Article 3b of that treaty, which is the subsidiarity clause, was unlikely to meet the Government's aim of preventing the further erosion of our sovereignty to Brussels and the Luxembourg court. The Government, on the other hand, held out subsidiarity as the shining shield against such erosion and the Benches opposite largely agreed. Since the report appears to share this vision, I fear that it is worth repeating for the record what Article 3b actually says and how the Edinburgh guidelines do not appear to modify its frightening disadvantages. I apologise for the Eurospeak, but here it is:
"The Community shall act within the limits of the powers conferred upon it by this Treaty and of the objectives assigned to it therein. In areas which do not fall within its exclusive competence, the Community shall take action, in accordance with the principle of subsidiarity, only if and insofar as the objectives of the proposed action cannot be sufficiently achieved by the Member States and can therefore, by reason of the scale or effects of proposed action, be better achieved by the Community. Any action by the Community shall not go beyond what is necessary to achieve the objectives of this Treaty".
Noble Lords will be relieved to hear that that is the end of the quote.
But the key phrase always was, and still is,
"in areas which do not fall within its exclusive competence".
That begs the obvious question: who decides what those areas are? Those of us who continue to regard subsidiarity as a sham have always believed that the answer must be that the Community itself decides, being the Commission, the Council and ultimately the court of so-called justice in Luxembourg. I say "so-called" because we do not regard it as a proper court of justice but rather as the engine of the Treaty of Rome committed to that ever-closer union of the peoples of Europe which the treaty requires.

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But this report says that the directive falls foul of the Edinburgh guidelines on subsidiarity rather than of the article itself. But I am not sure that those guidelines can help us much either. I quote from Clause 1.4 of the basic principles of the guidelines, which state as follows:
"The principle of subsidiarity does not relate to, and cannot call into question, the powers conferred on the European Community by the treaty as interpreted by the court. It provides a guide as to how those powers are to be exercised at the Community level including any application of Article 235. The application of the principle should respect the general provisions of the Maastricht Treaty including the maintaining in full of the acquis communautaire and it shall not affect the primacy of Community law".
Noble Lords will recall that the acquis communautaire is the mechanism in the treaty whereby when the Community has acquired a power or area of sovereignty, it never lets it go.
If we then go on to the second paragraph of the guidelines, which is under the heading, "Should the Community Act?", the answer is very simple:
"This paragraph does not apply to matters falling within the Community's exclusive competence".
So that brings us back to the difficulty of deciding who decides the competence.
My first question to my noble friend on the Front Bench is whether the Government still believe that subsidiarity can save us from this sort of damaging directive from Brussels. My second question echoes a question put by the noble Lord, Lord Stoddart of Swindon, this evening. That is, if subsidiarity cannot save us—and I have to submit that it cannot—how do we expect to fare under the eventual qualified majority vote to which this directive is presumably subject? As your Lordships will recall, there are 87 such votes among the 15 member nations: 62 votes are required to carry a motion and 26 to block one. The United Kingdom has 10 votes. So is my noble friend confident that we shall be able to get 16 other votes to support us against this directive and, if so, from which nations will those votes come?
In many ways this debate has been reminiscent of our debate on 14th December on the impending destruction of the United Kingdom art market by two European directives. Indeed, my noble and learned friend Lord Fraser of Carmyllie has again drawn the short straw to answer for the Government this evening. I fear that he did not answer my similar questions then as to how the Government propose to escape from the terms of the Treaty of Rome to which I have referred. I wonder whether he will be able to give us the answer tonight. If he cannot, does he not agree that it is time to start thinking of revising the terms of that treaty itself?
7.15 p.m.
Lord Peston: My Lords, I shall leave certain of those questions to the noble and learned Lord the Minister. I am not foolhardy enough or paid enough to get into those areas of discourse. I thank the noble and learned Lord, Lord Hoffmann, for introducing the debate and I congratulate him both on the report and the quality of his introduction. It is a fascinating report, full of the
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most interesting material. It is very much a lawyer's report. I note that there are seven lawyers among the 11 members of the committee. I hope that I may be forgiven if I say that many of the technicalities are beyond me and I am not qualified to comment on them. But I cannot resist noting, somewhat cynically perhaps, that the lawyers take the view that they do not want a statutory foundation for the Takeover Panel. They throw up their hands in horror at the possibility of judicial intervention in these matters. That is something well worth reflecting on.
I turn specifically to the main report. I agree with many of its conclusions. I say immediately that I can see little in favour of this particular directive, but I disagree with your Lordships' sub-committee in two ways. It is not as clear to me as it is to its members that there should not be a directive at all. Some of my reasons for criticising the directive are different from theirs.
I am somewhat following my noble friend Lord Haskel. I do not doubt that we need an efficient system of takeovers and takeover regulations. I also agree that the threat of takeovers may be an incentive to efficiency, but I must emphasise the word "may".
If we look at comparative economic efficiency, comparing UK firms with those in Europe, the United States and Japan, it cannot be demonstrated that there is a positive correlation between the ease of takeovers or the extent of takeover activity and productivity and productivity growth. Incidentally, that is not a matter that the committee looked at even remotely or on which it took any evidence. I did not have time to look at the matter in detail but my own judgment is that there is a negative correlation for a country like ours which is not at the forefront of productivity, efficiency and economic growth. To put it mildly, it is at least worth considering that our concern with matters like takeovers and similar matters which the City is interested in may be deleterious to our economic welfare rather than the reverse. I put it to your Lordships that we should think about that.
There are some logical points that need to be made. The Takeover Panel, the Commission, your Lordships' sub-committee, and also my noble friend Lord Borrie, believe that it is possible logically to separate shareholder questions and the behaviour of securities' markets from effects on the public interest, notably competition. I have to say that that is not at all clear to me.
If one accepts, as I do, that the ultimate test of any economic policy is its impact on the real economy, notably the welfare of consumers, and if one also accepts, as I do, that most takeovers fail that test, speeding up the ability to accomplish takeovers is not prima facie a good thing, as my noble friend Lord Haskel pointed out. But most of those who gave evidence, and your Lordships' committee itself, regard speed as good and slowing down as bad. Therefore, they must believe as a general case that takeovers are themselves intrinsically good and they cannot duck that question logically even though the report tries to do precisely that.

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The same point applies to discussion on litigation and all related matters, as shown in paragraphs 84 and 123 of the report. The ability to go more easily to law may discourage takeover activity, but since no one has demonstrated that such discouragement is deleterious to the real economy one has to say, "So what?"
The second problem concerns our old friend, the correct unit for subsidiarity. That was raised by my old friend, my noble friend Lord Stoddart of Swindon, and by the noble Lord, Lord Pearson of Rannoch. Central to the Treaty of Rome and to subsequent legislation is the single market and the ending of artificial and arbitrary restrictions on pan-European trade. Those people who use the old cliche and say that they are "Eurosceptics" say that what they want is free trade in a free trade area. However, that implies that just as there have to be special arguments to justify limitations on what can be bought and sold across the Community—mostly, such arguments are not valid—the same applies to the purchase and sale of shares and, above all, to the purchase and sale of whole companies. Therefore, if you believe in the free trade area approach, there is prima facie an argument for doing it in the same way throughout the Community, which is quite the reverse of what some people who occasionally criticise the Community want to argue when it suits them.
Being slightly more philosophical and looking again at the whole subject—this is not something that I want to dwell on for too long—why is the nation state, in this case the United Kingdom, the relevant unit for subsidiarity? If subsidiarity is such a good thing, why do we not have a different takeover panel for each of the English regions, and one for Scotland and one for Wales? There is a very good answer to that question; namely, that such a degree of sub-division would be economically inefficient in which case it follows that it needs to be demonstrated that the nation state is the correct degree of sub-division. It is completely beyond me how one could demonstrate that even remotely—
Lord Pearson of Rannoch: My Lords, my
point was that at the moment the application of subsidiarity in takeovers and everything else is decided by the British Government. In following the European interpretation of "subsidiarity" this directive intends to make it subject to the government in Brussels.
Lord Peston: My Lords, I was not really dealing with that point although I understand what the noble Lord is saying. I am simply asking him to reflect on the more general question of what the relevant unit for subsidiarity ought to be prima facie if he believes in the free trade area. Of course, the noble Lord may not believe in that either, but I do not see how he can go quite that far.
In other words, there is a prima facie case for uniformity here if you believe in the single market. Following what the noble and learned Lord, Lord Hoffmann, said, I would have thought that it is on political grounds that the Commission does not press that point. Having had its fingers burnt once, it is now willing to accept national procedural differences. However, as far as I can see from the evidence, it is
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hoped that the outcome will be much the same. I must emphasise the word "hope" although I cannot see any grounds for such hope. Paragraph 33 of the report is vital in this regard, as is the report made by the FLP in paragraph 34.
However, that does not cause me to disagree even to one degree with the view of the DTI that this directive as formulated does not deal with the problem. The one thing that the directive does not yield is uniformity. Indeed, if we were to go ahead with the directive, in my judgment it would increase differences and distort markets by applying in practice different regulatory regimes. Therefore, I strongly agree with the comments made by the Law Society, as quoted in paragraphs 61 and 63.
That leads me to a third question. Let us assume that we have a strong and effective regime encouraging competition. I look at my noble friend Lord Borrie when I say that we should "assume" that we have that. I assume that that question ought to precede the takeover question in the form in which it is now being discussed. Naive though I may be in saying this, we should have an effective regime encouraging competition—and I assume that that would take precedence over the takeover question. It follows that the principles set out in paragraph 26 are broadly acceptable, but that will not stop interested parties nitpicking, as is reported in paragraphs 70 to 75. However, those are points of detail.
The validity of those principles depends on their applicability across the European Union. With separate national approaches within the framework of the directive, one has to ask: if we were to go ahead— I repeat that I hope that we do not—who will monitor the principles and see that they are applied in practice? That does not seem to have emerged from the Commission's evidence or from that from anybody else. Again I ask—this is relevant to what the noble Lord, Lord Pearson of Rannoch, said—if the directive were to be introduced by qualified majority voting, would that represent a sustainable position? My judgment is that it would not. Therefore, I think that the noble Lord is right in saying that if it goes ahead it must be interpreted as simply an interim stage to complete uniformity with a statutory foundation. I do not see how there could be a half-way house. Therefore, I agree entirely with the sub-committee in paragraph 98 where it states that essentially the directive falls between two stools. It produces neither uniformity nor a sustainable separate position.
I must say a few words on the position of employees to follow what was said by my noble friend Lady Turner of Camden. Clearly, the TUC is right to express concern. Perhaps I may put it this way. Either a takeover limits competition and does nothing else, in which case it should not be facilitated, or it limits competition but also generates efficiency gains, in which case it is worth considering. Efficiency gains mean in the first place and overwhelmingly a reduction in employment. It is theoretically just about possible that demand could expand sufficiently to offset that but, in practice, that occurs only rarely, if at all. I can think of hardly any examples. Therefore, my conclusion, along with my

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noble friend, is that there should be an obligation to inform and consult employees as early as possible. I disagree with the Law Society's evidence that this is not the place to raise the matter.
Perhaps I should say also that I regard the opinion of the DTI, as quoted in paragraph 79, as wishy-washy. I should have liked your Lordships' sub-committee to have expressed a stronger opinion on that, but I am happy with the last sentence of paragraph 119, with which I shall burden your Lordships. It states:
"The importance of employees being informed and consulted should be expressly recognised by appropriate reference in the preamble to the Directive".
Finally, I am doubtful about the directive, but I am not convinced that there is no problem. After all, paragraph 84 of the report refers to real obstacles to takeovers in other member states. I have already referred to the DTI's evidence on that. Therefore, I do not see how your Lordships' sub-committee can reach the conclusion that it does in paragraph 96 on what it calls "soft harmonisation". Equally, I do not see why it is so optimistic about market forces leading to the appropriate outcome.
In summary, there are a number of problems to be solved. Although this directive is full of flaws and I hope that it will die, I do not believe that Her Majesty's Government's task can be solely to try to maintain the status quo complacently, as my noble friend Lord Chandos said. We need to find some allies. We need to find a way to produce a better directive or a better European approach.
7.28 p.m.
The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie): My Lords, we are grateful to the noble and learned Lord, Lord Hoffmann, and his sub-committee for preparing such a detailed and thorough report. It is obvious that considerable time and effort have been expended and I am particularly grateful to the noble and learned Lord for having set out so lucidly the sub-committee's views on the proposed directive. I am now pleased to have the opportunity to outline the Government's response.
In an interesting set of observations on both competition and merger policy, the noble Lord, Lord Bridges, sought to draw the two matters together. I agree with the noble Lord, Lord Borrie, that those matters can reasonably be separated. I disagree with the noble Lord, Lord Peston, for the same reason. It is not a matter of whether takeovers are good or bad. If a bid is allowed to proceed, it seems to me that it must be in everyone's interest that it should go forward quickly and be efficiently and effectively overseen. I certainly do not agree with the noble Lord, Lord Haskel, that we want somehow to slow down the process by putting, to adopt the noble Lord's phrase, sand in the system when the particular sand that would be put into the system by the operation of this directive would allow for an excessive degree of tactical litigation. Other than lawyers, who may wish to secure their fees, I do not believe that there is anyone who considers that to be a desirable way forward.
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It will come as no surprise when I say that the Government endorse the views of the committee. Like the committee, the Government are opposed to the directive and will strive to achieve the committee's principal recommendations that it should not be adopted and that the position of the Takeover Panel and the City code should be protected. The Government's principal concern is the same as the Committee's; namely, the effect that adoption of the directive would have on the UK's present non-statutory system of takeovers. The Government believe that one of the strengths of the UK's present system of takeover regulation is that it offers speed and certainty of decision making. The panel's decisions are in principle subject to judicial review. But the scope for tactical litigation whose sole purpose is to hold up a bid and thereby make it lapse is extremely limited.
The Government believe that an efficient system of takeover regulation is in the interest of UK companies and investors and of the wider economy. Once a bid is launched it is in the interests of all concerned that it should be determined swiftly. Whatever the merits of a bid, it is in no one's interest that it should become the subject of lengthy litigation. The adoption of the directive would necessarily entail a change in the legal status of takeover regulation in the United Kingdom. The panel as a regulatory authority would be placed on a statutory footing and the City code would have to be consistent with the directive. While it is difficult to predict what impact such a change would have, there is a realistic prospect that it would put at risk the advantages of our present system. In particular, it might become easier for parties to challenge decisions through the courts and to engage in tactical litigation.
The noble Viscount, Lord Chandos, expressed doubt about the risk of such resort to tactical litigation. Quite fairly, he pointed to the evidence of the Financial Law Panel. I invite him to look also at the rather briefer evidence which was submitted by Professor Len Sealy of the University of Cambridge. He indicated that, based on Australian and United States experience, there was not just a risk of tactical litigation inter partes but also that the regulatory authority might well be drawn into that litigation. I accept that Article 4.5 seeks to limit the scope for litigation. However, the Government share the committee's view that this article does not sufficiently safeguard the position.
As the noble and learned Lord, Lord Hoffmann, pointed out, the curious paradox is that this directive is allegedly in large part modelled on the City code. Commission officials themselves acknowledged in their evidence to the committee that our system provided the model for the directive and they had no desire to change our present system of regulation. It is ironic that the directive may inadvertently destroy the foundation on which that system is based and from which it derives much of its strength; that is, its non-statutory nature, its ability to resolve disputes without recourse to litigation and its flexibility to react to new or changing circumstances.
I should say something about those articles of the directive with which the Government are particularly unhappy and which they consider are in need of

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amendment. I do not intend to mention each and every change that the Government believe needs to be made, but simply the principal ones. I believe that these reflect the concerns of the committee. First, I refer to Articles 3 and 10, which deal with the protection of minority shareholders and mandatory bids.
The City code includes a mandatory bid requirement. Where someone acquires a specified proportion of a company's shares, he is obliged to offer to buy all the remaining shares in the company. Under the City code, the price offered for the shares must not be less than the price paid for shares acquired during the previous year. The Government regard this as the best means of safeguarding minority shareholder interests in the event of a takeover. A mandatory bid requirement ensures that all shareholders have the opportunity to share in any premium paid by the bidder for control of the company. It also allows shareholders to quit the company if they so wish because of the new owners. The proposed directive does not include a mandatory bid requirement as such. It allows member states to choose between a mandatory bid requirement and measures which "offer other appropriate and at least equivalent means in order to protect the minority shareholders of that company". It is not clear to the Government—it would also appear from paragraph 116 of the report that it is not clear to the Select Committee—or indeed any organisation that has been consulted, what would constitute equivalent protection to a mandatory bid.
The directive also allows for partial mandatory bids. As a consequence, a bidder might be required to buy only a proportion of the remaining shares rather than all of them. This would have the extremely unfortunate consequence of leaving an even smaller minority of shareholders within the company. It is difficult to see what protection such an arrangement would afford these shareholders.
I have already mentioned Article 4.5 and its attempt to deal with the problem of tactical litigation. We acknowledge the Commission's attempt to anticipate UK objections by stipulating that courts need not as a consequence of the directive change their stance of not intervening during the course of a bid. But the Government are concerned that the wording would not be effective in preventing parties from bypassing or challenging the panel's procedures and seeking judicial review by the courts. I believe that that concern was also reflected by the noble Lord, Lord Borrie.
There is a further problem with this article. It requires that injured parties must enjoy adequate remedies. This can be through an appeals procedure operated through the supervisory authority or through the right to take proceedings before the courts to claim compensation. The wording of Article 4.5 needs to be amended to make clear that the two options of an appeals procedure or compensation are genuine alternatives and that a member state may adopt one of these two options. We would opt for the appeals procedure route. Compensation is most unlikely to provide an appropriate remedy. Actual or potential breaches are likely to be best remedied by prompt action of the supervisory authority during a bid.
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Article 5.1 also causes problems. This article sets out a number of general principles with which the more detailed regulatory requirements must comply. On the face of it, this is an approach similar to that of the City code. But if the principles are set out in a directive and subsequently implemented by statute there must be doubt as to whether the supervisory authorities can continue to apply the principles of flexibility or approach those principles in a purposive fashion as they can at present. I believe that the noble Lords, Lord Spens and Lord Borrie, considered it desirable that such flexibility should be maintained. The position would instead be that the principles in the directive would be subject to interpretation not only by the domestic courts but also by the European Court of Justice. The resulting case law could constrain the Takeover Panel's interpretation of the City code.
Article 8 seeks to constrain frustrating action by companies which are the subject of a bid. We agree with the committee that it could be interpreted in a number of ways and needs to be amended if it is to be effective in preventing boards from shielding themselves from takeovers without the informed consent of their shareholders.
I have concentrated on our main concerns about the drafting of the directive. I have not mentioned all our concerns on drafting or our other objections. For example, we agree with the committee's conclusion that the directive does not meet the criteria for subsidiarity— I hope that my noble friend Lord Pearson will allow me to say it—set out in the guidelines adopted at the European Council in Edinburgh in 1992. Our position on this matter is fully stated in the memorandum responding to the committee's report, which is available in the Library. I do not propose to detain your Lordships with that now. However, I thought that there was a particularly telling point within the committee's report at paragraph 95. The noble Lord, Lord Peston, thinks that one day we must go to some uniform set of procedures across Europe, and it seems to me that the observation here is particularly telling, where:
"The Commission could not point to any transnational problems which the Directive would in practice help to solve".
If it could not point to any particular circumstance in practice where this directive would be of value, nothing could more clearly indicate that the principle of subsidiarity should apply in relation to this type of control.
Lord Peston: My Lords, I noted that, and I was extremely impressed by it. What puzzled me, and the reason I did not press it any further, was his own department's evidence which said that it was concerned essentially about restrictions on possible bidders in this country engaged in cross-European purchases of firms elsewhere in the market; in other words, what puzzles me—the Minister might like to reflect upon it—is that the Commission could not point to any transnational problems but his department was bellyaching like mad about precisely that matter. I thought that I would leave well alone for the moment, but it is not a minor point. My view is that the halfway house position is unacceptable. I can go for complete subsidiarity or

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complete uniformity. So I do not believe that there is a great deal between us, or certainly in this case not between me and the committee. It is the middle position of the directive which, I agree with everyone, is impossible.
Lord Fraser of Carmyllie: My Lords, there are some real problems, which my department is right to point out, if the directive is adopted. Not least, as I was pointing out—I was trying to deal with matters as briefly as possible earlier—if case law should develop, for example (that would be case law coming from the ECJ) it might come up in relation to all manner of takeovers and issues in other countries which would, in turn, necessarily have to be reflected in the way the Takeover Panel's activities were governed in the UK. I do not consider that there is in any sense a contradiction between what is included in that passage by the committee and what my department has indicated.
I shall pass now to the consultation exercise undertaken by the DTI. We consulted a wide range of interests. The overwhelming view of those who responded was that the adoption of the directive would be a retrograde step. The reasons cited were, almost without exception, the ones which both the committee and the Government have identified.
We have also received a number of letters from major companies listed on the Stock Exchange. Those companies would be subject to the directive's requirements if it were adopted. Without exception, all were opposed to the directive and have asked that the Government should oppose its adoption in negotiations in Brussels.
The noble Baroness, Lady Turner, referred to the protection of employees in takeovers. The noble Lord, Lord Peston, thought our response to that was wishy-washy. Advanced consultation with employees before a bid was announced would provide opportunities for insider dealing. The noble Lord, Lord Haskel, said that there must be a way to get round that. With the greatest of respect, I do not believe that there is such an opportunity. For that reason, we agree with the committee that it would not be feasible to require consultation in advance of information being made publicly available. Of course we understand why the noble Baroness would like to see such consultation, but there is another set of interests here. We just do not see any compatibility in achieving the two.
I should say a few words about future discussions on the directive. At present the directive is being considered by the Legal Affairs and Citizens' Rights Committee of the European Parliament. It may be on the dates to which the noble Lord, Lord Haskel, referred, but I am not sure. In any event, it will have to make its recommendations which will then have to be considered by the full parliament. So far as I am aware no date has been set for that debate. There have as yet been no discussions over the draft directive in the Council. None has been scheduled so far by the present Dutch presidency.
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My noble friend Lord Pearson chided me for failing to respond to him when we last discussed a similar draft directive of which I disapproved before Christmas. At present, in looking to our future action we cannot be sure how other member states will react until negotiations in Brussels commence. It is too soon to judge whether we can muster a blocking minority. I regard the subsidiarity point as being one of such general application that even if there are other countries which are not particularly concerned one way or another about this directive, they should be concerned about the subsidiarity point. We shall voice our fundamental concerns on the effect of the directive and the limited justification for the proposal, but we shall also seek— that is why I have taken some time to spell it out—in negotiations to obtain changes to the text which would minimise the effect on our takeover regime were it to be introduced. We shall try to ensure also that the weaknesses in the text are put right.
In conclusion, I should say that there is almost unanimous opposition to the directive from business, from those who advise on takeover bids, and from the regulators. Those concerns have been explored in detail and subjected to rigorous analysis by the committee chaired by the noble and learned Lord. The committee has come out clearly against the directive. For the reasons I have given, the Government share that view, and we shall continue to argue the case against the directive as vigorously as we can.
7.47 p.m.
Lord Hoffmann: My Lords, I am most grateful to noble Lords for the thoughtful contributions that have been made to the debate, as I am sure are the members of the committee who took part in the preparation of the report. My noble friend Lord Chandos commented upon the thinness of attendance on the Benches opposite, so I should say that I know that there are noble Lords who would have wished to contribute to the debate but they were attending a memorial service for a late Member of this House and were unable to be present here.
A number of noble Lords raised questions which are of great importance in connection with takeovers but which go beyond the scope of the system of regulation with which we are here concerned. My noble friend Lord Haskel said that the report did not deal with whether takeovers were a good thing. My noble friend Lord Peston returned to the same theme. He said that if one were concerned with making the machinery of takeovers work better, it followed that one was in favour of takeovers. He said that one could not duck that question. I do not propose to duck it. I shall meet the matter head on.
The system of regulation takes as given the legal structure and the economic structures of this country, which are, as I said, encouraging to takeovers. That may be a good thing; it may be a bad thing. If it is thought to be a bad thing on competition grounds, the answer is to strengthen the competition laws. If it is thought to be insufficiently protective of the rights of employees— something I perfectly understand—the answer is to take precautions that the takeover shall not go through unless the rights of employees have been properly safeguarded.

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But it is arbitrary and eccentric to discourage takeovers, if you think they are a bad thing, by encouraging tactical litigation and creating unfairness to shareholders. That is the matter with which this system of regulation is concerned, and that is all it is concerned with.
Likewise, the question of competition policy: we are dealing here with a self-regulatory system. It is wholly inappropriate for competition policy to be the subject matter of a self-regulatory system. Competition policy represents the economic policy of the state, to be enforced by the state. It is not a matter to be enforced by gentlemen who have been brought together for self-regulation in the City of London.
Likewise, the question of employees: the position of employees on a takeover is serious and important. When the Acquired Rights Directive was being discussed by the Select Committee strong arguments were put forward that the rights given to employees when there is a takeover of a business—the right to be consulted and the right to have their jobs carried forward as against the new employer—should also be extended to a case in which there is a change of control in the shareholding by means of a takeover bid. From an economic point of view, if you are the employee of a company which has been taken over it does not make a great deal of difference whether what has been taken over are the assets and undertaking or the shares. That is the appropriate place in which to deal with the protection of employees on that matter. If that is going to be done, that is where it should be done. It is not a matter to be introduced into a system of self-regulation by the City.
I do not propose to pursue the noble Lord, Lord Pearson of Rannoch, into the arcane doctrine of subsidiarity. It is sufficient that he appears to regard the directive as being inappropriate, as does the committee, and I propose to leave it at that. It may be surprising to noble Lords to hear that when I practised as a lawyer I regarded it as part of my duty to keep my clients out
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of the courts. That is the objective which the Takeover Panel has sought to pursue over the years and, though I am a lawyer, it remains a wholly laudable one.
Finally, I thank the Minister for what appears to be the close agreement between the views of his department and those of the committee. That is an unusual position for the committee to find itself in. I conclude by wishing him every strength in the endeavours of his department to resist the implementation of this directive.
City of Westminster Bill [H.L.]
Girobank Plc (Transfer) Bill [H.L.]
Hailsham Cattle Market Bill [H.L.]
Lloyds TSB Bill [H.L.]

London Local Authorities Bill [H.L.]
Presented and read a first time.

King's College London Bill [H.L.]
The Chairman of Committees acquainted the House that, pursuant to the resolution of Thursday 19th December, the Bill had been deposited in the Office of the Clerk of the Parliaments together with the declaration of the agent; the Bill was presented, read a first time, passed through all its remaining stages pro forma and sent to the Commons.
House adjourned at eight minutes before eight o'clock.