§ 3.6 p.m.
§ Lord McIntosh of Haringey
My Lords, I beg to move that the Commons amendments be now considered.
Moved, That the Commons amendments be now considered.—(Lord McIntosh of Haringey.)
§ On Question, Motion agreed to.
§ AMENDMENT TO BE MOVED ON CONSIDERATION OF COMMONS AMENDMENTS
§ [The page and line numbers refer to HL Bill 32 as first printed for the Lords.]
180 After Clause 149, insert the following new clause—
§ ("CHAPTER IIA
§ POLICIES RELATING TO TAKEOVER REGULATION
MARKET ABUSE: BEHAVIOUR CONFORMING WITH CITY CODE
.—(1) Subject to subsections (2) and (3), the Authority is authorised to include in the code issued under section 110 a statement that behaviour of a person which is in conformity with the City Code does not amount to market abuse.
(2) Subsection (1) does not apply in respect of behaviour which satisfies the condition in section 109(2)(a).
(3) A statement made under subsection (1) may include such conditions and limitations as the Authority considers appropriate, including conditions and limitations specifying the behaviour and the persons covered by the statement.
(4) The Authority may at any time alter or replace any statement made under subsection (1).
(5) If a person behaves in a way which fulfils the requirements of any statement included pursuant to subsection (1) in the code issued under section 110, that behaviour of his is to be taken, for the purposes of this Act, as not amounting to market abuse.
(6) In this section—
behaviour of a person which is in conformity with the City Code" means behaviour of a person which in the opinion of the Panel conforms with the responsibilities imposed on that person by the City Code;
the opinion of the Panel" includes any revised opinion formed by the Panel as a result of any further consideration;
City Code" means the City Code on Takeovers and Mergers issued by the Panel as applied by the Panel and as amended from time to time by the Panel;
the Panel" means the Panel on Takeovers and Mergers.")
§ The Commons disagreed to this Amendment but proposed the following amendment in lieu thereof—
180A After Clause 110, insert the following new clause—
PROVISIONS INCLUDED IN THE AUTHORITY'S CODE BY REFERENCE TO THE CITY CODE
(".—(1) The Authority may include in the code issued by it under section 110 ("the Authority's code") provision to the effect that in its opinion behaviour conforming with the City Code—
(2) But the Treasury's approval is required before any such provision may be included in the Authority's code.
(3) If the Authority's code includes provision of a kind authorised by subsection (1), the Authority must keep itself informed of the way in which the Panel on Takeovers and Mergers interprets and administers the relevant provisions of the City Code.
(4) "City Code" means the City Code on Takeovers and Mergers issued by the Panel as it has effect at the time when the behaviour occurs.
(5) "Specified" means specified in the Authority's code.").
§ Lord McIntosh of Haringey
My Lords, I beg to move that the House do not insist on their Amendment No. 180 to which the Commons have disagreed and do agree with the Commons in their Amendment No. 180A in lieu thereof.
I do not propose to detain the House with a detailed discussion of the background to these amendments. It is well-trodden ground and it has received plentiful coverage in the press. However, in order to avoid any doubt, I shall reiterate the Government's full support for the work done by the Takeover Panel in overseeing the process and conduct of takeovers. The panel carries out an important job and does it extremely well. We want to see that continue.
Contrary to some misleading reports that have appeared in the press, this is not a Bill to regulate takeovers. Our amendment does not give the FSA any powers to interfere in the work of the panel nor does it require the panel to seek the views of the FSA before taking action. At earlier stages we gave careful consideration to the arguments concerning the Takeover Panel. We concluded that nothing needed to be done. Indeed, it remains our view that the Bill, as introduced to your Lordships' House, would not have affected the position of the panel. The FSA intends to adopt robust policies which will keep it out of tactical manoeuvres by parties to a takeover. We are satisfied that those policies will work well.
It is important to remember that there is at present a measure of overlap. It exists between, on the one hand, the panel's rules and the regulatory regime and criminal offences of market manipulation and misleading statements on the other. To date, this has not caused any problems. The courts have taken a 1375 strong line, refraining from interfering during the course of takeovers. The noble and learned Lord, Lord Donaldson of Lymington, referred to that in the debate at Third Reading when he said that the courts would give no injunctive relief. We have no reason to suppose that in the future the courts will take a different view.
However, we have responded to the arguments that have been put forward in the House. In light of those arguments, we judged it prudent and sensible to propose a "safe harbour" amendment for the Bill. We did so at Third Reading. The amendment then brought forward would have allowed the FSA to provide a safe harbour for behaviour in conformity with all or part of the City code produced by the panel. However, again, concerns were expressed at Third Reading that the FSA should not be able unilaterally to impose its own interpretation, but in essence should be guided by the panel's interpretation.
We have addressed those concerns. Although we cannot allow Amendment No. 180 to remain part of the Bill, for reasons that I shall explain, we have made important improvements to the amendment previously tabled in this House.
Perhaps I may repeat what I said at Third Reading:Given … the nature of the [City] code and the panel's role in interpreting and applying it, I would naturally expect the FSA to take the panel's view before it decided whether behaviour fell within the safe harbour which the government amendment would enable it to provide. It would be very foolish if it did not ֵ I would expect the tribunal and, if the matter came before them, the higher courts, to attach due weight to the panel's views in accordance with established case law"—[Official Report, 18/5/00; col. 403.]Our Amendment No. 180A will ensure that that happens. The FSA will be under a statutory duty to keep itself informed of the way in which the panel interprets and administers the relevant provisions of the code. This will mean that the FSA will have to have arrangements in place for seeking the panel's views on whether behaviour is in conformity with the City code. It will have to take this fully into account when deciding whether to act in cases of possible market abuse. The panel's views will be bound to carry a lot of weight with the FSA, the tribunal and the courts.
This issue was one of great importance in our earlier debates. I am pleased to have found a form of words which meet the concerns expressed by the noble Lord, Lord Newby, and others. This the right result. To go further would be to go too far and to make the panel the final arbiter of market abuse during takeovers. Apart from being objectionable as a matter of principle, this would also have consequences for the panel which might cause it a great deal of concern if it really thought about it. Under our amendment, the decision on whether behaviour amounts to market abuse will always rest with the FSA, the statutory regulator, and ultimately with the independent tribunal to be established under the Bill. Amendment No. 180, on the other hand, provides a safe harbour for behaviour which in the panel's opinion conforms with the City code. This would give the panel the power to decide that a person has not engaged in market abuse.
1376 In another place, the Liberal Democrat spokesman, Dr Vincent Cable, having listened to the arguments on both sides, supported our approach. He said:If there is a conflict of jurisdiction and a choice has to be made, the FSA should prevail. The amendments make that clear so that the uncertainty and ambiguity about which Conservative Members have expressed concern do not arise".He went on to say, before his party joined the Government in the Division Lobby, that,The peers' judgment"—that is, on our latest amendment—was that there was no need to raise further objections because the fairness point had been accepted, the jurisdiction had been clearly defined and the work of the takeover panel had been incorporated".—[Official Report, Commons, 5/6/00; col. 100.]As I have said previously, the issue of principle is simple. Should the ultimate decision on whether action constitutes market abuse, as defined in the Bill, rest with the statutory regulator, the FSA and the tribunal, or with the non-statutory Takeover Panel? The answer is equally straightforward. It must be right, in what I should expect to be the very rare event of a disagreement between the FSA and the panel, that the last word should rest with the FSA and the independent tribunal.
If Amendment No. 180 were allowed to remain in the Bill, I believe that, having taken advice at the highest level, there would be important consequences, particularly in terms of the European Convention on Human Rights, which were not appreciated by those who drafted the amendment. Giving the panel the final right to decide whether particular behaviour amounted to market abuse would, in effect, give it statutory functions. These functions would involve the determination of civil rights, and even possibly what would be regarded as criminal charges under the European convention.
Throughout the passage of the Bill, the Opposition have rightly insisted—the noble Lord, Lord Kingsland, has been admirably persistent on this point—that in exercising such functions the FSA should be fully accountable and that there should be the safeguard of access to an independent tribunal. We have ensured that the market abuse regime is fair, transparent and certain, with appropriate safeguards set out on the face of the Bill. These include the safeguards necessary to ensure compliance with the ECHR where what is at issue is the determination of criminal liability.
Let me make it clear that I am not questioning the arrangements for the accountability of the panel in the usual context in which it operates. This simply means that they are not appropriate here. They were never designed to deal with the determination of whether market abuse has occurred under Part VIII of the Bill. Against that background, I am sure that the amendment proposed in another place is the right one to deal with the concerns that have been expressed. Amendment No. 180A will ensure that if problems arise in this area—we are confident that they will not—adequate and effective safe harbours can be provided. That will be done without compromising the position of the panel or the single statutory regulator, the FSA.
1377 I do not know whether the noble Lord, Lord Alexander, would like me to speak to his amendment now or to reserve my remarks until the end of the debate. The noble Lord indicates that he would like me to reserve my remarks. I commend to the House the proposed amendment made in another place in lieu of Amendment No. 180.
Moved, That the House do not insist on their Amendment No. 180 to which the Commons have disagreed and do agree with the Commons in their Amendment No. 180A in lieu thereof.—(Lord McIntosh of Haringey.)
AMENDMENT TO COMMONS AMENDMENT NO. 180A
180B Line 8, at end insert—
("and such provision may specify that behaviour conforming with the City Code is behaviour which is considered by the Panel on Takeovers and Mergers as conforming with the City Code").
§ 3.15 p.m.
§ Lord Alexander of Weedon
My Lords, I beg to move Amendment No. 180B, as an amendment to Commons Amendment No. 180A.
This is a long, technical, regulatory Bill, but this is not an arid technical point. I believe—as, unanimously, does everyone who works in the City—that it is an important point of principle for your Lordships to consider. Can we preserve the well established, effective current system under which the Takeover Panel does its work? Or are we—as the government amendment would do, in spite of the Minister's eloquence—to risk undermining the panel's authority, to open the door to the disruption of the takeover process and stifle the work of the panel in the rampant bindweed of tactical legal manoeuvres? As takeover activity is a significant part of business in financial markets, the issue is one of considerable importance to shareholders, great and small.
I am well aware that the Conservative Party supports my amendment. But I in no sense raise the issue as a party-political one. I do so as a former chairman of the panel. I hope that the House will recognise that the success of the panel transcends party politics and affects the strength of City markets to which, or so I believe, all of us are committed.
Perhaps I may briefly remind your Lordships of the history of the panel and its achievements. It was established under aegis of the Bank of England more than 30 years ago and has been consistently supported by the Bank. The impetus for its creation was the need to make sure that all shareholders received equal treatment during takeovers, that they were properly informed of the sometimes complex arguments and that a bid was conducted within an orderly and clear timetable. The panel has to supervise bids to see that parties comply with the well known code and it has to guard, during a bid, against market abuse such as share ramping.
Over the years, the panel has monitored some 7,000 bids. In the last full year alone, it has supervised some 300 proposals. These are not just important to the 1378 Titans of the corporate world; they directly affect pension funds, investment trusts and small shareholders. The panel has a conspicuous record of always being vigilant to see that the interests of small shareholders are not overlooked and that they are fully protected.
No one would pretend that the monitoring of takeover bids is an easy task. The bid process often represents a gladiatorial contest where there is much at stake both for companies and for their investment banking advisers. Powerful company chiefs lay their reputation and their future on the line. Behaviour is tactical. The parties to a bid, as I know from experience, will pursue any course of action within the bounds of law and regulation which may advance their cause. Advisers are paid large fees to be inventive and forceful, and the earning of those fees sometimes depends on their success. They often seek to tough it out with the panel.
In this demanding task the panel has a record of very considerable success. Its processes have been speedy, open, fair and relatively inexpensive. The panel has a tradition of giving firm judgments and properly reasoned decisions. It has always been chaired by a senior lawyer, from the time of Lord Shawcross to that of Sir David Calcutt QC, the present incumbent. It has its own appellate procedure, with an appeal panel invariably chaired by a former senior judge of high standing. The importance that the City attaches to the work is reflected by the willingness of experienced senior figures to take part and to do so at short notice.
There are other merits of the panel system. The code is interpreted flexibly to ensure compliance with the spirit of the rules and not just with the letter. The panel will give rulings in advance of proposed action so as to keep the train on the rails and not just pick up the pieces after the accident. In more than 30 years in the law I have found this the most effective process I have known for the fair and speedy resolution of disputes. Nor, so far as I am aware, has there been a shadow of a suggestion that its procedures have not complied with the European Convention on Human Rights.
May I give your Lordships one illustration of the strengths and virtues of the panel in action? In 1987 there was a contest between Guinness and Argyll, which were vying with each other to acquire the ailing business of Distillers. Some months after the bid was over, Guinness having won, it was discovered that some of its conduct raised concern that there had been market abuse through share support operations. The panel was able to investigate within a matter of months and ordered Guinness to pay almost £80 million by way of compensation. Guinness sought judicial review and claimed that the panel should have taken no action until all the criminal proceedings arising out of the incident had been completed. That would, of course, as was no doubt the intention, have held up action for years. But the Court of Appeal, presided over by the noble and learned Lord, Lord Donaldson, rumbled what the aim was and dismissed the case. That was fortunate, since both criminal and other regulatory 1379 procedures limped on for years. Only the panel was able to take clear, firm and decisive action to give prompt redress to shareholders.
I believe that it has been widely recognised that the effectiveness of panel judgments would be seriously diminished if they could not be promptly enforced. Indeed, in the well known Datafin case the Court of Appeal held precisely for that reason that the panel should not normally be subject to judicial review during the course of a takeover; otherwise, tactical litigation by parties seeking to gain time and disrupt the bid process would be inevitable. Successive governments have recognised the wisdom of that decision by speaking up firmly at Brussels in debates on a European takeover directive to preserve the panel's non-statutory status and so prevent its being sucked into the legalistic procedures of the courts.
The noble Lord the Minister made it clear the last time the issue was before your Lordships, and he has made it clear again today, that the Government fully support the work of the Takeover Panel and that they want it to continue doing the job in the way that it has been doing it. The paradox is that their proposal would in reality foul up the process. As the noble Lord said today, it would allow the panel's decisions to be second-guessed. The FSA, he said, would take them into account. The implication of that is that he is contemplating that it will be second-guessed. That means that the panel will be brought into a legalistic framework from which it has previously been healthily exempt.
That fear has been widely expressed across the City and by a virtually unanimous press in recent weeks. Any participant in a takeover disappointed by the panel's decision could—and the noble Lord appears to suggest that this is a virtue—go over the panel's head to the FSA. Once the FSA had ruled, whichever party did not like its decision would in turn take a taxi and head from Canary Wharf to seek judicial review in the Law Courts in the Strand. The floodgates would be open for tactical manoeuvring, delay and uncertainty. As The Times said very recently,the way will be open for almost any company that finds itself in a takeover situation to shriek 'market abuse' and head for the courts where any bid could be barred for months, even years".The Government's reaction has been extremely curious. They were slow to respond to the panel's concerns and to understand that the argument might have any validity. They now say that they see that it does, for what they have put before your Lordships is an amendment that suggests that behaviour that complies with the City code shall not amount to market abuse. The amendment is a start, but it clearly completely misses the mark. Who is to decide whether there has been compliance? The Government say that the FSA must be the final arbiter, because it is the statutory regulator. I find that response both doctrinaire and perverse. Who will understand the takeover process better—the panel or the FSA? Who has a proven track record of success in this area—the panel or the FSA? Will the panel's authority be undermined if participants know that it is simply a staging post on the road to the FSA?
1380 Nor could the FSA decline requests to second-guess the panel, and the noble Lord does not suggest that it could. The government amendment imposes a clear statutory duty on the FSA to hear the case, and that means that it cannot decline jurisdiction; nor can it in any sense fetter its discretion by saying that it will invariably or normally uphold the panel. After that, whichever party was discontent, if there had been a division of opinion between the panel and the FSA, would seek judicial review from the successors of the noble and learned Lord, Lord Donaldson.
It is no wonder that on the last occasion the noble Lord, Lord Newby, speaking for the Liberal Democrats, said very wisely that he supporteda form of words that makes it absolutely clear that the interpreter of the City code is indeed the Takeover Panel—it is its code—rather than the FSA".The noble Lord concluded:That is important".—[Official Report, 18/5/00; co1.406.]I entirely agree with him. Exactly the same principle is at stake today.
When the House considered this issue a few weeks ago your Lordships accepted that a somewhat different amendment would have protected the panel's work. I do not believe that the essential mischief has been cured. My amendment seeks to improve the amendment from the other place, which, as it stands, would undermine the panel's work. I am not suggesting for a moment that your Lordships play indefinite ping-pong with the other place, but it should be given the opportunity to recognise that this amendment is appropriate and indeed necessary to sustain proper City regulation.unless this Bill is amended, there will be significant damage to the quality of takeover regulation in the UK. This will in turn damage the reputation of the UK financial markets for integrity and efficiency".Are these not strong words coming from the most consistently successful of City regulatory bodies? For some time, I hoped that a government who assert that they understand and are committed to business, would respect and heed that view. I hope that the House will do so.
Moved, That Amendment No. 180B, as an amendment to Commons Amendment No. 180A, be agreed to.—(Lord Alexander of Weedon.)
§ 3.30 p.m.
§ Lord Donaldson of Lymington
My Lords, I agree with and support the amendment of the noble Lord, Lord Alexander. However, I am troubled by a different point; namely, subsection (2) of the Commons amendment. It provides that the FSA cannot exercise this power under the amendment without the consent of the Treasury.
I understand from what has been said in another place and today that there is no criticism of the work of the panel. There is general agreement that the City needs the panel. It is an essential part of its infrastructure. There is general agreement that the panel must be allowed to continue to operate as it now does. I can summarise the two essential operational 1381 requirements of the panel. They are these. First, it must be capable of giving almost instantaneous rulings in the course of a bid. That is the case at present and I do not think that it would be varied by the Government's proposed amendment. The second essential operational requirement is that the rulings must not be capable of challenge in the context of the takeover in which they are given. It is that second requirement which is absolutely vital. At present it is guaranteed by the policy of the courts to which the noble Lord referred. In the context of the suggestion that a statutory body must always have more authority than a non-statutory body, I must point out that the courts were faced with a choice between exercising their own powers—they are certainly as great as those created by a statutory body, and possibly greater—and those of the Takeover Panel. They decided that as long as the Takeover Panel was confined in its proof against attack to what was done in a particular takeover, its authority should prevail.
Perhaps I may use an analogy. In effect the courts were saying that the Takeover Panel is in the same position as a referee in a tennis or football match (with which we are much afflicted at present). It does not mean to say that one cannot review what has happened by means of television and other wonders and by that process prove beyond a doubt that the referee was right or wrong. But if he were wrong, the decision stands. That is what we must have in the context of the panel.
That does not mean that a review of its decisions is impossible or would be unprofitable. That second look in a more leisurely context may enable the FSA, the panel or both to decide that there must be a change in the rules in the future. However, the rulings in the context of the bid must remain inviolate.
That is why I am troubled by subsection (2). The Government, the Treasury, might be minded to say that the panel could exercise permissive powers granted under subsection (1) in any way it likes provided that it maintains the overriding authority of the FSA. If so—I agree with the noble Lord, Lord Alexander—there will be a traffic jam between Canary Wharf and the Strand; and that we cannot have.
We shall have to see. I do not understand why this clause, of all clauses relating to the FSA panel, has to require Treasury consent. Any other provision in the code can be made by the FSA and all it has to do is to tell the Treasury. No doubt it would tell the Treasury in advance and the Treasury would have a view. But that is not the point. It could just make the code and tell the Treasury, but it cannot do so under this provision. Why not? I know that the Economic Secretary to the Treasury in another place stressed that the FSA must be preferred in the case of a conflict because it is a statutory body. The Minister said much the same today. That is what frightens me, even if there is not an amendment today.
§ Lord Newby
My Lords, in considering these matters it is important to begin by recognising what the government amendment represents; namely, a major 1382 concession by the Government of the safe harbour principle in respect of the provisions of the takeover code. It would not have been introduced if it had not been possible to have close working relations with the Official Opposition with whom we have worked on a number of amendments. It is also worth reminding ourselves that on a number of key issues, whether corporate governance, the role of the practitioner and consumer panel, and other matters we in this House have successfully improved the Bill in a substantial way.
The single principle which now confronts us is not the safe harbour provision but an important matter which arrived in this House at the latest possible stage of our consideration of the Bill; namely, who decides whether the takeover code has been followed in cases of possible market abuse.
The two options are either to argue—as in the Alexander amendment—that the Takeover Panel should always have the final say; or to say—as in the government amendment—that the FSA must keep itself informed about the way in which the panel interprets the code. The government amendment recognises that the Takeover Panel will remain the principal interpreter of a code on a day-to-day basis but, consistently with their view about the primacy of the FSA—it is a view which we, on these Benches, have accepted, in particular in respect of the gatekeeper proposal which was discussed on a number of occasions in this Chamber—that the FSA will have the final word. This amendment is a significant improvement on the amendment which we considered at Third Reading because the role of the panel is recognised on the face of the Bill.
Perhaps I may make one point about referees and umpires. When there is a difficult issue in Rugby League and cricket (as there were as regards a number of run-outs at Lords on Saturday) there is an immediate reference to a second, higher authority—a television replay. While it is always dangerous to take sporting analogies too far, one can argue either way in respect of best practice on the sports field.
The amendment of the noble Lord, Lord Alexander, has the benefit of clarity which, as he kindly pointed out, I sought at Third Reading. However, the amendment inevitably cuts across the principle that at the end of the day the statutory body, the FSA, should prevail over the non-statutory Takeover Panel. The ECHR implications—the noble Lord did not refer to them—became apparent only at a late stage. They could significantly undermine his amendment.
The question before us today is somewhat broader than simply whether the Alexander amendment is technically preferable. It is whether this is an issue on which we wish to initiate a ping-pong procedure with another place. As noble Lords are aware, on these Benches, we have no aversion in principle to sending Bills back to the Commons for a second time. We have done so previously in this Parliament, and we may well do so again before this Session ends. We accept, however, that this power should not be used lightly, 1383 particularly in cases such as this where we support the principle of the Bill and wish to see it on the statute book as soon as possible.
The tests which we have to apply in deciding whether or not a ping pong should be initiated are those of principle and substance. We believe that we should only be prepared to send a Bill back to the Commons on an issue of clear principle and major substance. How then does this issue fare against those tests?
First, on the question of principle, the principle covered by this amendment is whether there should be safe harbour provisions in respect of the takeover code. That is the subject of this amendment, and that is the key concession which has been made. The question of who interprets the code requires a judgment to be made between the rival merits of two bodies—the panel and the FSA—which in any event are required to co-operate closely on the whole question of countering market abuse. In our view, that is a matter of judgment; it is not essentially a matter of principle. The issue, in our view, does not pass the test of being a matter of major principle in the context of the substance of this amendment, namely, safe harbour.
Secondly, how much substance is there in this issue and how great is the difference between the Government's amendment and that proposed by the noble Lord, Lord Alexander of Weedon? It has been our view throughout the debates on this issue that too much has been made of the possible damage which could be caused to the regulatory process in respect of takeovers by the passage of this Bill. Some of the language used in support of the panel's position has, in our view, been exaggerated. I do not believe that it is unanimous City opinion that this House should die in the ditch, back and forth to the Commons, in order to get the Alexander amendment through.
The difference between the amendment proposed by the noble Lord, Lord Alexander, and that of the Government will only have a significant impact on the way in which takeovers are regulated if the FSA and the panel fail to find a sensible modus operandi in dealing with potential market abuse during the conduct of takeovers. There is no reason to believe that they will not do so. We believe that when this Bill is on the statute book it will be possible for the FSA and the panel to reach working arrangements which will minimise the scope for mischievous legal action to gain a tactical advantage during takeover bids. We therefore believe that this issue fails the major substance test.
This Bill has occupied a very large amount of parliamentary time. It has been significantly improved during its passage through your Lordships' House. The time has now come to get it on to the statute book to enable the FSA and the panel to get on with their job. We shall, therefore, not support Amendment No. 180B but will support Amendment No. 180A.
§ 3.45 p.m.
§ Lord Grabiner
My Lords, for good reason, a very large amount of parliamentary time has been devoted to this Bill, as the noble Lord, Lord Newby, mentioned. The Bill is designed to ensure that the financial services industry in this country is properly regulated by the FSA. The FSA is to be the central building block of the new regime, and there is agreement on all sides that that is the right approach.
The essential feature of the amendment proposed by the noble Lord, Lord Alexander of Weedon, is that its object is to enable the FSA to delegate what are vital regulatory powers to the Takeover Panel, although the Takeover Panel is non-statutory, unregulated and essentially an unaccountable body. Needless to say, I have the highest possible regard for the views of the noble Lord, Lord Alexander, not only on this but on almost every subject. However, I believe that on this occasion his amendment is wrong in principle. The FSA should not delegate its powers to the panel.
It has been said that the Bill in its current form involves some implicit criticism of the panel or suggests that it might not be up to it. I do not believe that that is correct. Everybody agrees that over the past 32 years the panel has done an excellent job. One hopes that it will continue to provide a first-rate service. The problem is that the world has changed. Unfortunately, the days when everyone in the City takeover community knew each other have gone. Virtually all the great houses have been gobbled up by American, Swiss, German or Dutch financial institutions. The amounts of money at stake are fabulous and occasionally unpronounceable.
The powers of the panel are, as they always have been, extremely limited. For example, the panel has no direct power to enforce a simple demand for information. Many of us may regret it, but the truth is that these voluntary arrangements no longer reflect the needs of the market place. This Bill is designed to deal with the new global markets and, through the FSA, to sustain London in particular as a world class financial centre.
It has also been said that the Bill in its current form would be a stimulus to mischievous lawyers' activities. It is said that there will be numerous applications for judicial review and that unjustified or frivolous attempts to frustrate bids or to upset the workings of the market place will be made. I do not accept that there is any force in those arguments. I believe that they are more imagined than real.
The Datafin approach was admirably summarised at an earlier stage of the Bill by its inventor, the noble and learned Lord, Lord Donaldson, with the memorable phrase, "masterly inactivity". The FSA can hardly be convicted of unreasonableness if it seeks to achieve its statutory objectives by non-interference in the fast moving circumstances of the 60-day bid period and against the legal backdrop of the principle established in the Datafin case. The common sense of the principle in the Datafin case will surely prevail in the courts. No doubt someone will wish to test the point against the FSA. So be it. There never was any 1385 form of bullet-proof legislation which could prevent that from happening. Speaking as a professional lawyer, I am delighted that that is the case. Once tested, the validity of the approach of the FSA will, I believe, be vindicated and any uncertainties will disappear.
The other side of this coin is that there will be cases in which the FSA may take the view that it should move in the period during which a bid is taking place. Many of your Lordships will recall the Guinness scandal some 15 years ago, to which the noble Lord, Lord Alexander made reference. If the true facts of that case had emerged in the course of the 60-day period, that would have been an obvious example of market abuse under the Bill.
On that particular point, I digress for a moment. The noble Lord made reference to the Guinness scandal and also to the great success of the panel on that occasion. The panel's conduct in securing a sum of about £80 million for shareholders who had been swindled represented a singularly magnificent achievement in the sense that it had never previously been done nor has it ever subsequently happened. But the truth is that that part of the performance of its role by the panel took place long after the bid period had come to an end, and that is precisely the sort of thing which certainly would not now be dealt with by the panel in any event but would fall precisely within the role of the FSA in dealing with market abuse.
Another example was the bid about three years ago by the Galileo Group for the Co-operative Wholesale Society. Your Lordships may recall that transaction. In that case, an officer of the target company was filmed in a carpark handing over highly sensitive, confidential documents to officers of the predator company. An injunction was granted preventing the predator from using the documents. As a result, the lines of finance for the bid collapsed and the bid was abandoned. That was a case in which the court interfered during the currency of the bid.
It is an example of what would be market abuse under Clause 109. In such a case, one might well expect the FSA to move in the course of the bid. By contrast, it is the kind of case which the panel is not well equipped or designed to deal with, but the FSA would be because of the powers which have been granted to it—or which will be granted to it when the Bill becomes law.
It seems to me that the Bill in its current form, as amended in another place, provides a balanced solution to the problem. It will ensure active co-operation between the FSA and the panel. They will together make operating agreements; they will liase with each other; and they will share information.
I believe that in the usual case—by which I mean the vast majority of takeover bids—things will go on very much as they do today, without interference either from the FSA or from the courts. I believe that we 1386 should adopt that approach and that this House should reject the amendment tabled by the noble Lord, Lord Alexander.
§ Lord Kingsland
My Lords, I shall be suitably telegraphic. My noble friend Lord Saatchi and I have been speculating on why the noble Lord, Lord Newby, has changed his mind since Third Reading. During the past three months, my noble friend and I have much admired the way in which the noble Lord, Lord Newby, has represented his party in your Lordships' House. We dared to entertain the speculation that his decision not to continue to support was not entirely his own.
However, whatever the basis of the noble Lord's decision, I suggest that he cannot have made it on the merits of the case. The noble Lord, essentially, supported the amendment tabled by my noble friend Lord Alexander at Third Reading; and the Minister told your Lordships today that the Government have not changed their position on the matter.
The truth is that, for whatever reasons, the Liberal Democrats have chosen to turn their backs on this most vital question. Having heard my noble friend Lord Alexander and the noble and learned Lord, Lord Donaldson, none of your Lordships can be in any doubt about the crucial importance of this issue to the City of London, with all that that entails for the economy beyond.
For the Opposition to accept the Government's amendment, that amendment must ensure that safe harbours not only provide for compliance with the text of the code, but also for compliance with the interpretation by the panel of the text of the code in any circumstances arising in the course of a takeover bid. Otherwise, no one—either bidder or defender of a bid—can have any confidence in the guidance issued by the panel.
For those reasons, the Opposition support the amendment introduced, most eloquently, by my noble friend Lord Alexander and to which he brought such authority.
§ Lord McIntosh of Haringey
My Lords, no one is better qualified than the noble Lord, Lord Alexander, to launch into the encomium which he rightly made about the distinguished history of the Takeover Panel. After all, he knows much of what he speaks from his distinguished personal knowledge. We agree with what he says about the work of the panel and I made that clear at the outset. Nothing I have said, or shall say, will detract from our respect for its work.
However, the noble Lord's amendment is still subject to the same fundamental objection of principle that I have explained. Under the amendment, the FSA, with Treasury approval, would be able to decide—the word used in the amendment is "may"—that the panel should be allowed to determine whether market abuse has taken place. It will be clear from what I said at the 1387 outset that the final determination of whether market abuse has taken place is key to all our arguments on the Bill in this place. The objectionable point of principle and the convention difficulties—to which I referred and noticed were not responded to in any way by the noble Lord, Lord Kingsland, who was so keen on the convention difficulties which he saw elsewhere in the Bill are the same as with Amendment No. 180, to which I have spoken.
I have to say that we cannot conceive of circumstances when the FSA and the Treasury would agree to take that step. We cannot and will not legislate to provide for something which we believe would be wrong. The determination of whether market abuse has been committed amounts to the determination of a civil right. On any analysis, if a safe harbour of the kind provided for in Amendment No. 180B were to be brought into force, the panel would be determining a person's civil rights.
There must be a real question whether the hearings before the panel at which such a decision was taken constitute what is required by Article 6 of the European Convention on Human Rights; that is, a,fair and public hearing … by an independent and impartial tribunal established by law".The panel's success is based on speed, informality and voluntary subjection to its rulings. We do not want to lose that and with the Government's amendments we shall not do so.
It has been argued notably and frequently by the noble Lord, Lord Kingsland, that market abuse is criminal for convention purposes. He went much further than our belief, but nevertheless we have taken into account his arguments and provided for all the protections to convention-proof the market abuse regime for which he asked.
We have taken advice at the highest level. Last summer, we took advice from Sir Sydney Kentridge. We believe that these arguments are overstated, but we thought it prudent to introduce criminal safeguards into the FSA's procedures. If the noble Lord's amendment is carried, will the panel do the same? Will the panel introduce criminal safeguards? It is impossible to conceive how that could happen.
It is clear that the general effect of the amendment would be to make the rules and actions of the panel significantly more justiciable—more open to legal challenge—than they are now. We do not want that to happen. We support the panel's current approach to the regulation of takeovers. We are not prepared to agree to an amendment which, however well intentioned, will in due course undermine the panel. We cannot believe that when it has the chance to take a long, hard look at this latest amendment the panel will want it either.
In introducing the amendment, the noble Lord, Lord Alexander, said that he did not want to see pingpong between this House and another place. This is already ping-pong. This matter has been debated at length during its many stages through this House. It has been returned to another place which has had a 1388 second look at it. I put it to your Lordships that it is not acceptable for us to challenge it, particularly when we are right.
§ Lord Alexander of Weedon
I was interested in the Minister's peroration. Much as I like him—as I do—and much as I respect him—as I do—I thought it was a bit rich of him to suggest that my amendment would undermine the work of the panel. In so far as the arguments have been put to the Government with tot al clarity, this has been a dialogue of the deaf. Even in his response, the noble Lord indicated a lack of comprehension. Perhaps I may quote from a very experienced financial commentator, who said last week:This is a crucial piece of legislation for the City. In particular, the survival of the Takeover Panel as the final arbiter in takeovers is something regarded as essential by the practitioners. It is an institution that works to the benefit not only of investment bankers but everyone. It must be kept".I am grateful to all noble Lords who have spoken in the debate. I am particularly grateful to the noble and learned Lord, Lord Donaldson. Indeed, a barrister always finds it a considerable comfort when a judge with unrivalled commercial experience agrees with and accepts his argument. It was he who decided that the panel should not have its decisions regularly second-guessed. That is simply what I seek.
The noble Lord, Lord Grabiner, suggested that the panel is unaccountable. That simply is not so. My amendment enables, but does not require, the FSA to say that conformity with a panel ruling is conformity with the code. It enables the FSA to withdraw that ruling if it so permits. Therefore, in terms of accountability, a clear link is created between the panel and the law. With regard to accountability, the noble Lord, Lord Grabiner, surely will recollect that it is a condition of Stock Exchange listing that public companies comply with panel rulings. That is a very effective form of enforcement and accountability.
I was interested to hear that the European Convention on Human Rights was relied upon. That hare has come to the fore more prominently as the Government have realised that they do not have many other steeds entered in this race. In a cricketing analogy—the noble Lord, Lord Newby, used one—it is a longstop. Of course, we who love cricket know that the worst fielder is always put at longstop. If those fears were ever to be made good, the FSA could withdraw the authority. However, attempting to terrorise this House with the convention may not impress.
In the time that I knew the panel—and the panel has been a party to the convention during its entire existence—there was never a suggestion that its procedures, of which I briefly reminded your Lordships, were unfair.
I conclude by reference to one or two arguments put forward by the noble Lord, Lord Newby. Of course, I do not understand the political processes to which my 1389 noble friend Lord Kingsland referred. However, with the greatest respect to the noble Lord, perhaps I may say that the merits of those arguments were absolutely barren. He said that the government amendment recognises the position of the panel. It does not. It recognises the position of the code, but not that of the panel, as the noble Lord, Lord Newby, would have had it when we last discussed the Bill, as the authority which determines compliance. The noble Lord said that the government amendment contemplates that the panel will normally give the first ruling. Where, I ask? The Bill is absolutely silent on that point.
I could go on. I speak to the noble Lord in the hope that he and his colleagues, whom I very much respect, on reflection will decide that the principle that they supported last time round is right. I certainly appeal to your Lordships to respect, if not my view, the view of the noble and learned Lord, Lord Donaldson, the views of the City and of the financial press, and to speak for UK business. In the light of the encouragement that I have received, I should like to test the opinion of the House.
§ 4.4 p.m.
§ On Question, Whether the said amendment (No. 180B), as an amendment to Commons Amendment No. 180A, shall be agreed to?
§ Their Lordships divided: Contents, 183; Not-Contents, 188.1392
|Division No. 1|
|Aberdare, L.||Carnegy of Lour, B.|
|Ackner, L.||Carr of Hadley, L.|
|Alexander of Weedon, L.||Carrington, L.|
|Allenby of Megiddo, V.||Cavendish of Furness, L.|
|Ampthill, L.||Chadlington, L.|
|Anelay of St.Johns, B.||Clark of Kempston, L.|
|Astor, V.||Cockfield, L.|
|Astor of Hever, L.||Coe, L.|
|Attlee, E.||Colwyn, L.|
|Bagri, L.||Cope of Berkeley, L.|
|Barber, L.||Courtown, E.|
|Bell, L.||Cowdrey of Tonbridge, L.|
|Bellwin, L.||Cox, B.|
|Belstead, L.||Craigavon, V.|
|Blackwell, L.||Cranborne, V.|
|Blaker. L.||Crathorne, L.|
|Blatch, B.||Crickhowell, L.|
|Blyth of Rowington, L.||Croham, L.|
|Boardman, L.||Cuckney, L.|
|Bowness, L.||Dacre of Glanton, L.|
|Brabazon of Tara, L.||Darcy de Knayth, B.|
|Bridgeman, V.||Dean of Harptree, L.|
|Brigstocke, B.||Deedes, L.|
|Brittan of Spennithorne, L.||Dixon-Smith, L.|
|Brougham and Vaux, L.||Donaldson of Lymington, L|
|Burnham, L. [Teller]||Dundee, E.|
|Buscombe, B.||Eden of Winton, L.|
|Butterworth, L.||Elles, B.|
|Buxton of Alsa, L.||Elliott of Morpeth, L.|
|Byford, B.||Elton, L.|
|Caithness, E.||Erroll, E.|
|Campbell of Croy, L.||Feldman, L.|
|Carlisle of Bucklow, L.||Flather, B.|
|Carnarvon, E.||Fookes, B.|
|Forsyth of Drumlean, L.||Northbrook, L.|
|Gardner of Parkes, B.||Northesk, E.|
|Gilmour of Craigmillar, L.||Norton of Louth, L.|
|Glenarthur, L.||O'Cathain, B.|
|Glentoran, L.||Onslow of Woking, L.|
|Goschen, V.||Oppenheim-Barnes, B.|
|Gray of Contin, L.||Oxfuird, V.|
|Griffiths, L.||Palmer, L.|
|Griffiths of Fforestfach, L.||Palumbo, L.|
|Hanham, B||Park of Monmouth, B.|
|Hanson, L.||Pearson of Rannoch, L.|
|Harris of High Cross, L.||Peyton of Yeovil, L.|
|Harris of Peckham, L.||Pike, B.|
|Haslam, L.||Pilkington of Oxenford, L.|
|Hayhoe, L.||Powell of Bayswater, L.|
|Henley, L.[Teller]||Prior, L.|
|Higgins, L.||Pym, L.|
|Home, E.||Quinton, L.|
|Hooper, B.||Rawlings, B.|
|Howe, E.||Reay, L.|
|Howell of Guildford, L.||Rees-Mogg, L.|
|Hunt of Wirral, L.||Renfrew of Kaimsthorn, L.|
|Hurd of Westwell, L.||Renton, L.|
|Hylton-Foster, B.||Roberts of Conwy, L.|
|Inglewood, L.||Ryder of Wensum, L.|
|Jenkin of Roding, L.||Saatchi, L.|
|Jopling, L.||Sainsbury of Preston Candover L.|
|Kimball, L.||St. John of Fawsley, L.|
|Kingsland, L.||Sanderson of Bowden, L.|
|Kirkham, L.||Seccombe, B.|
|Lamont of Lerwick, L.||Selborne, E.|
|Lang of Monkton, L.||Sharples, B.|
|Lindsay, E.||Shaw of Northstead, L.|
|Liverpool, E.||Shrewsbury, E.|
|Lucas, L.||Simon of Glaisdale, L.|
|Luke, L.||Skelmersdale, L.|
|Lyell, L.||Skidelsky, L.|
|McColl of Dulwich, L.||Soulsby of Swaffham Prior, L.|
|McConnell, L.||Stevens of Ludgate, L.|
|Mackay of Ardbrecknish, L.||Stewartby, L.|
|Marlesford, L.||Strathdyde, L.|
|Marsh, L.||Swinfen, L.|
|Marshall of Knightsbridge, L.||Taylor of Warwick, L.|
|Masham of Ilton, B.||Tebbit, L.|
|Mayhew of Twysden, L.||Thatcher, B.|
|Miller of Hendon, B.||Trefgarne, L.|
|Molyneaux of Killead, L.||Trumpington, B.|
|Monro of Langholm, L.||Vivian, L.|
|Monson, L.||Waddington, L.|
|Montagu of Beaulieu, L.||Wade of Chorlton, L.|
|Montrose, D.||Walker of Worcester, L.|
|Mowbray and Stourton, L.||Weatherill, L.|
|Moynihan, L.||Wilberforce, L.|
|Murton of Lindisfarne, L.||Wilcox, B.|
|Naseby, L.||Willoughby de Broke, L.|
|Newton of Braintree, L.||Young, B.|
|Norfolk, D.||Young of Graffham, L.|
|Acton, L.||Bernstein of Craigwell, L.|
|Addington, L.||Blackstone, B.|
|Ahmed, L.||Blease, L.|
|Alli, L.||Bradshaw, L.|
|Amos, B.||Brennan, L.|
|Andrews, B.||Brookman, L.|
|Archer of Sandwell, L.||Brooks of Tremorfa, L.|
|Ashton of Upholland, B.||Bruce of Donington, L.|
|Avebury, L.||Burlison, L.|
|Bach, L. [Teller]||Burns, L.|
|Barker, B.||Carter, L.[Teller]|
|Barnett, L.||Castle of Blackburn, B.|
|Bassam of Brighton, L.||Chandos,V.|
|Beaumont of Whitley, L.||Christopher, L.|
|Berkeley, L.||Clarke of Hampstead, L.|
|Cledwyn of Penrhos, L.||Lovell-Davis, L.|
|Clement-Jones, L.||Macdonald of Tradeston, L.|
|Clinton-Davis, L.||McIntosh of Haringey, L.|
|Cocks of Hartcliffe, L.||McIntosh of Hudnall, B.|
|Cohen of Pimlico, B.||MacKenzie of Culkein, L.|
|Craig of Radley, L.||Mackenzie of Framwellgate, L.|
|Crawley, B.||McNally, L.|
|Dahrendorf, L.||Mallalieu, B.|
|David, B.||Mar and Kellie, E.|
|Davies of Coity, L.||Mason of Barnsley, L.|
|Davies of Oldham, L.||Massey of Darwen, B.|
|Dean of Thornton-le-Fylde, B.||Merlyn-Rees, L.|
|Desai, L.||Miller of Chilthorne Domer, B.|
|Diamond, L.||Milner of Leeds, L.|
|Donoughue, L.||Mitchell, L.|
|Dormand of Easington, L.||Molloy, L.|
|Dubs, L.||Morris of Castle Morris, L.|
|Elder, L.||Morris of Manchester, L.|
|Evans of Parkside, L.||Murray of Epping Forest, L.|
|Evans of Temple Guiting, L.||Newby, L.|
|Evans of Watford, L.||Oakeshott of Seagrove Bay, L.|
|Ezra, L.||Parry, L.|
|Falconer of Thoroton, L.||Patel of Blackburn, L.|
|Falkland, V.||Paul, L.|
|Farrington of Ribbleton, B.||Peston, L.|
|Faulkner of Worcester, L.||Phillips of Sudbury, L.|
|Filkin, L.||Pitkeathley, B|
|Fyfe of Fairfield, L.||Plant of Highfield, L.|
|Gale, B.||Ponsonby of Shulbrede, L.|
|Gavron, L.||Prys-Davies, L|
|Gibson of Market Rasen, B.||Puttnam, L.|
|Gilbert, L.||Ramsay of Cartvale, B.|
|Goldsmith, L.||Randall of St. Budeaux, L.|
|Goodhart, L.||Razzall, L.|
|Gordon of Strathblane, L.||Redesdale, L.|
|Goudie, B.||Rendell of Babergh, B.|
|Gould of Potternewton, B.||Rennard, L|
|Grabiner, L.||Rodgers of Quarry Bank, L.|
|Graham of Edmonton, L.||Rogers of Riverside, L.|
|Greaves, L.||Roll of Ipsden, L.|
|Greengross, B.||Roper, L.|
|Grenfell, L.||Russell, E.|
|Gregson, L.||Sainsbury of Turville, L.|
|Hamwee, B.||Sawyer, L.|
|Hardy of Wath, L.||Scotland of Asthal, B.|
|Harris of Greenwich, L.||Scott of Needham Market, B.|
|Harris of Haringey, L.||Serota, B.|
|Harrison, L.||Sharman, L.|
|Haskel, L.||Sharp of Guildford, B.|
|Hayman, B.||Shepherd, L.|
|Hilton of Eggardon, B.||Sheppard of Liverpool, L.|
|Hogg of Cumbernauld, L.||Shore of Stepney, L.|
|Hollis of Heigham, B.||Shutt of Greetland, L|
|Hooson, L.||Simon, V.|
|Howells of St Davids, B.||Smith of Clifton, L.|
|Howie of Troon, L.||Smith of Gilmorehill, B.|
|Hoyle, L.||Stern, B.|
|Hughes of Woodside, L.||Stoddart of Swindon, L|
|Hunt of Kings Heath, L.||Stone of Blackheath, L.|
|Irvine of Lairg, L. (Lord Chancellor)||Strabolgi, L.|
|Islwyn, L.||Symons of Vernham Dean, B.|
|Janner of Braunstone, L.||Taylor of Blackburn, L.|
|Jay of Paddington, B. (Lord Privy Seal)||Thomas of Walliswood, B.|
|Thomson of Monifieth, L.|
|Jeger, B.||Thornton, B.|
|Jenkins of Putney, L.||Tomlinson, L.|
|Joffe, L.||Tope, L.|
|King of West Bromwich, L.||Tordoff, L.|
|Kirkhill, L.||Turner of Camden, B.|
|Layard, L.||Varley, L.|
|Lea of Crondall, L.||Walmsley, B.|
|Lipsey, L||Warner, L.|
|Lockwood, B.||Warwick of Undercliffe, B.|
|Lofthouse of Pontefract, L.||Watson of Richmond, L.|
|Longford, E.||Wedderburn of Charlton, L.|
|Whaddon, L.||Wilkins, B.|
|Whitaker, B.||Williams of Elvel, L.|
|Whitty, L.||Williams of Mostyn, L|
|Wigoder, L.||Winston, L.|
§ Resolved in the negative, and amendment disagreed to accordingly.
§ 4.16 p.m.
§ On Question, Motion agreed to.
589 Page 219, line 8, leave out sub-paragraph (4) and insert—
("(4) In a case where the investigator—
The Commons agreed to this amendment with the following amendment—
589A Line 2, leave out from ("(4)") to end of line 7 and insert
("If the investigator considers that a complaint of which he has been notified under sub-paragraph (3) ought to be investigated, he may proceed as if the complaint had been referred to him under the complaints scheme.
(4A) The complaints scheme must confer on the investigator the power to recommend, if he thinks it appropriate, that the Authority—
§ Lord McIntosh of Haringey
My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 589A to Lords Amendment No.589.
I hope that noble Lords on all sides will welcome the consensus that we have been able to reach on the final amendment to this Bill. The Government will agree to Amendment No. 589A, which was moved from the Opposition Front Bench in another place and which amends Amendment No. 589. Amendment No. 589A restores the power of the investigator to investigate in accordance with the complaints scheme any complaint of which he has been notified by the authority but which the authority has decided not to investigate. This is an amendment to a Lords amendment carried on a Division despite my assurances that we supported the principle that the investigator should have power to make ex-gratia payments. The amendment removes an anomaly which we believe was not intended.
Moved, That this House do agree with the Commons in their Amendment No. 589A to Lords Amendment No. 589.—(Lord McIntosh of Haringey.)
§ Lord Kingsland
My Lords, I should like to thank the noble Lord for the Commons amendment which slightly redrafts the one which was before your Lordships' House. It meets all our criteria perfectly.
On Question, Motion agreed to.
§ Lord McIntosh of Haringey
My Lords, I beg to move that the House do now adjourn during pleasure for five minutes.
Moved accordingly, and, on Question, Motion agreed to.
§ [The Sitting was suspended front 4.18 to 4.23 p.m.]