Joint Committee on Financial Services and Markets Minutes of Evidence



Examination of witnesses (Questions 460 - 464)

THURSDAY 15 APRIL 1999

LORD HOBHOUSE OF WOODBOROUGH and LORD LESTER OF HERNE HILL, QC

  460.  Is it your view that we could draw a civil remedy alongside the criminal one for market abuse in this country which would be completely compatible?
  (Lord Lester of Herne Hill)  I would have to see the colour of their money first before I could comment. It is too abstract a question I think for me to be able to answer.
  (Lord Hobhouse of Woodborough)  The problem is if you go down the fining route you then have to accept the consequences of liberty to impose fines. If you accept all those consequences then you may find at the end of the day you comply with the Convention, that you treat it as effectively a criminal proceeding although it does not go before an ordinary court, that it satisfies the requirements of fairness, protection against self-incrimination and so on. So you can achieve a result of that kind by redrafting and you can also achieve the necessary degree of certainty but you have to decide at the start which route you are going to go down and then comply with the necessary requirements.

Mr Loughton

  461.  Does this problem still apply if you are not talking about financial fines but the penalties are in terms of restrictions of membership rights, in terms of suspension of right to trade in financial products or whatever they might be? Does that get away from some of these legal problems if we are not talking about purely financial penalties?
  (Lord Lester of Herne Hill)  The question is a very general one. English and Scottish fairness requirements will apply as much to disqualification, loss of livelihood and loss of reputation, as they will to fines, so all the requirements of natural justice, fairness, and all the administrative law requirements will apply. As I said before, under the Convention as well, because one is determining someone's civil rights, including the right to a good reputation and their livelihood, that will also trigger many of the procedural safeguards in Article 6 of the Convention. Not all of them, because for example the privilege against self-incrimination may be looked at differently whether it is criminal or civil, both under Convention law and under English law. In both cases the fairness requirements are strong and apply whether it is civil or criminal.

  462.  I understand. I am not a lawyer but to take a specific example, a hypothetical case, fund managers to be regulated by the FSA pay their membership dues or whatever and have to be licensed to sell certain products, if an ISA provider did not live up to the expectations and its clients were aggrieved by the way it ran its ISA funds or whatever, and as a consequence the FSA said, "For the next financial year you are not allowed to be a provider of ISAs", which did not involve any fine but did involve taking away the livelihood, which only came about because that financial institution became a member of the club to carry out that chosen nature of business, does that make it any easier under the European angle than being penalised by a heavy fine which tends towards the criminal side, as you are saying?
  (Lord Lester of Herne Hill)  No. I think what I am saying is that the detriment is as great whether it is financial or putting you out of business for a year or more and blighting your reputation, and the fairness requirements apply with great force in both situations. But there may be some situations where, and this is rather technical, because there is a fine and because it is a deterrent and penal in its consequences, it has to be classified as criminal and therefore the additional requirements with regard to the presumption of innocence in particular will apply.
  (Lord Hobhouse of Woodborough)  If I might add to that, there is a distinction between the withdrawal of a privilege and the imposition of a punishment. If you are doing it under the regulatory scheme and saying that somebody requires to be licensed you have to justify the regulatory scheme. In other words, you have to show the need for it and that the regulations which you introduce are appropriate and reasonable and not disproportionate. Then if somebody fails to comply with that reasonable scheme then provided they are subject to a fair procedure which will decide whether or not they have failed to comply you are not getting into the ambit of what most people would regard as punishment. If you start imposing fines then you are potentially in a different area and for practical purposes in the area that we are talking about it looks as though you will almost inevitably be in that area. Just to go back to the market abuse type of situation, if the regime were to be that you could go to court and get an injunction against people who were practising market abuse then you would be in the civil area. If you were saying that we will make it a tort, rather like under Clause 55 in a better format, then that again would be civil, or restitution of unfair enrichment, unjust enrichment. Those would be within a civil scheme but once you introduce the system of fining, which is punishing, then you have these problems.
  (Lord Lester of Herne Hill)  Could I just add one thing in addition about the Convention. The Bar Council of England and Wales has a disciplinary system and a barrister who was disbarred brought a case in Strasbourg against the United Kingdom on the basis that the procedures were not sufficiently fair and the procedures were revised as a result of the Bar thinking more clearly about Article 6 of the Convention. It is quite a good example of the way in which Article 6 can require full fairness particularly in a professional disciplinary context.

Lord Poole

  463.  I find it quite difficult to get my head around some of this. We have heard from the Minister and the FSA a mantra which basically says "Of course we are very concerned to do everything properly and conform with the ECHR" and they are not sitting, as it were, very far away from you and you are saying "Excuse me, I think there are a number of examples of areas in this Bill where I do not think you are going forward". I assume that there is space here for reasonable people to disagree but am I right in saying that really what you are trying to do is to alert us to what you would between you consider to be some very high probabilities, that it would be unwise of the Government to proceed without taking seriously into account?
  (Lord Lester of Herne Hill)  I am really saying, first of all, that as this is pre-legislative scrutiny the Government should, and I am sure if asked would, provide the Joint Committee with its best view about the impact of the European Human Rights Convention and British constitutional principles of law to their scheme. That ought to come now, I think, rather than after the Bill has been published so that the Committee is well informed and can make a report based upon it. Secondly, it must be better for the Bill to be in as perfect a state as possible before it is introduced rather than after and certainly before it has been enacted into law. My experience as someone who worked within Government, not as great as that of you, Lord Chairman, is that the time to improve legislation is before it is introduced into Parliament since what happens thereafter is of much less significance.

Chairman:  I think we will have to consider whether we can press the Government to give their views before we come to make our report but, as you know, time is extremely short. One other possibility is that we could try to press them to make their views known after our report has been published but before the Bill is introduced. We will have to discuss with them what the best timetable is for that. I am very grateful for the evidence. I think the Committee has found this session immensely helpful. In the light of the additional document we have shown you this afternoon if there is anything you want to add now or if you would like to let us know at a later point we would of course be enormously grateful for that too. We are adopting an approach of trying to find ways in which we can bring together the evidence that we have had and make suggestions about how the Bill might be improved. We are not adopting an approach of just standing back and saying "This is something that will not work", we are actually looking for solutions to some of these problems but obviously in the very limited time we have got there is only so much we can do.

Lord Taverne:  I have one question. We have very thoroughly explored the provisions about market abuse and I did ask a question about how the Convention might also affect the provisions in this Bill for the Ombudsman. I am not aware of any opinion having been put before this Committee on this also equally important question. Lord Lester mentioned that there was an Opinion which he had which also seemed to think this is a very important question. Could we perhaps have that as well because we may persuade the Government to avoid a dreadful mistake dealing with market abuse and then find that they have made an equal howler in the section dealing with the Ombudsman.
  (Lord Lester of Herne Hill)  I inadvertently referred to an Opinion of which I have knowledge but it is not my property. The client has ownership of the Opinion and, therefore, I cannot say any more about it except that my own opinion is that the Article 6 provisions undoubtedly apply to the Ombudsman and have serious implications for the way that the Ombudsman system is brought into existence. That is what is now going to be considered, I understand, at your next session.

Chairman

  464.  It is.
  (Lord Lester of Herne Hill)  It may be that the FSA might be able to provide you with their view about the impact of Article 6 on the Ombudsman.

Chairman:  Thank you both very much, it has been very helpful.


 
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