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Lord Kingsland: I thank the Minister for that response and I shall look carefully in Hansard at what he has said. I hope he will recognise that the fact that something has not been done in the past is not necessarily a good argument for not doing it now or in the future.

Lord McIntosh of Haringey: I had always assumed it was a Conservative principle that nothing should be done for the first time.

Lord Kingsland: Irrespective of my own party's principles, the fact that the party opposite introduced the European Convention on Human Rights and devolved power to Scotland and Wales in a very short period of time indicates that the philosophy just adumbrated by the Minister in relation to my amendment had no role whatever in the thinking of his Government in 1997 and 1998. Nevertheless, I shall read carefully the words of the Minister. Meanwhile, I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Schedule 2 agreed to.

Clauses 21 and 22 agreed to.

Clause 23 [Contravention of section 19]:

[Amendment No. 104 not moved.]

Clause 23 agreed to.

Clause 24 [Agreements made by unauthorised persons]:

Lord Kingsland moved Amendment No. 105:


The noble Lord said: I now have the daunting task of moving Amendment No. 105 and speaking to Amendments Nos. 106 to 119. Amendment No. 105, together with Amendments Nos. 106 to 108, all relate to the same point, which admittedly is relatively minor. Clause 24 concerns,


    "An agreement made by a person in the course of carrying on a regulated activity in contravention of the general prohibition".

It is provided that the agreement is unenforceable against the other party, who is defined as "the purchaser". The same definition is used in Clause 25 in relation to an agreement made with an authorised person,


    "in consequence of something said or done by another person ... in the course of a regulated activity carried on by the third party in contravention of the general prohibition".

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In practice, the party to the agreement, who is defined as "the purchaser", could be both the purchaser and seller of an investment. It is confusing to define a person as the purchaser when an appropriate less confusing alternative--in this case, we suggest "counter-party"--is available.

Amendments Nos. 109 to 111 all relate to Clause 26 which is concerned with agreements that are made unenforceable under Clauses 24 and 25. Under Clause 26(3) the court may allow the agreement to be enforced, or money or property paid or transferred under the agreement to be retained, if the enforcement conditions are met. The enforcement conditions set out in Clause 26(4) are,


    "that it is just and equitable for the agreement to be enforced or (as the case may be) for the money or property paid or transferred under the agreement to be retained",

and that either of the requirements of paragraph (a) or (b) is satisfied. Given that a court must be satisfied,


    "that it is just and equitable for the agreement to be enforced or (as the case may be) for the money or property paid or transferred under the agreement to be retained",

it is unnecessary to stipulate further conditions which must be satisfied. In exercising its judgment as to what is just and equitable, a court will take into account a number of factors, including the belief of the relevant party to the agreement and the state of his knowledge. Accordingly, the further enforcement conditions in Clause 26(4) are unnecessary.

I turn next to Amendment No. 113. In passing, I note that the amendment seeks to insert into Clause 27 the verb "made" after "('the deposit-taker')" in line 8 on page 12. The reason is that the word "made" appears to have been omitted.

Lord McIntosh of Haringey: Yes. Move on!

Lord Kingsland: It is a simple drafting amendment to correct the omission and perhaps a triumph for the Opposition to hear the Minister so spontaneously, and without rising to his feet, concede the point.

Amendment No. 114 is a corresponding amendment to, I think, Amendment No. 109 in the context of agreements entered into in the course of a deposit-taking business. Again it appears unnecessary in order for an agreement to be enforceable to go beyond what a court would regard to be just and equitable in the circumstances.

On Amendment No. 115, although Clause 27 refers to the activity of deposit taking, there is no definition of what is meant by deposit taking. The amendment is intended to remedy that omission.

I turn now to Amendment No. 116. It provides a new clause after Clause 27. Clause 24 deals with agreements made by a person in the course of carrying on a regulated activity in contravention of a general prohibition; while Clause 25 deals with agreements made by an authorised person in the course of carrying on a regulated activity, not in contravention of the general prohibition but in consequence of something

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said or done by another person in the course of a regulated activity carried on by that person in contravention of the general prohibition.

Neither Clauses 24 nor 25 applies to deposit taking. Clause 27 relates to deposit taking and corresponds to Clause 24. However, there is no provision relating to deposit taking which corresponds to Clause 25: that is, an agreement made by an authorised person in the course of carrying on deposit taking but in consequence of something said or done by another person in the course of a regulated activity carried on by him in contravention of the general prohibition.

The Government have argued that an equivalent provision to Clause 25 is not required in the context of deposit taking because it is not proposed to make giving advice on deposits a regulated activity. The difficulty with that approach is that the question of what is a regulated activity is determined by an order made by the Treasury. If, as subsequently may be the case, it is decided that the giving of advice on deposits should be a regulated activity, the Bill will be deficient as it will not deal with the case in relation to deposits in the same way as Clause 25 deals with agreements not involving deposits.

The better approach is to include a new clause in the Bill covering the point and, if appropriate, to exclude its application by determining that the giving of advice in relation to deposits is not a regulated activity. If subsequently it is decided that the giving of advice in relation to deposits should be a regulated activity, the clause will then apply without the need for primary legislation to amend the provisions of the Bill.

Amendments Nos. 117 to 119 correspond to Amendments Nos. 109 and 110 except that Clause 28 deals with the enforceability of agreements resulting from unlawful communications. However, the same points apply as before. I beg to move. I think that I have spoken to most of the amendments of note between Amendments Nos. 105 and 119.

Lord McIntosh of Haringey: If I start by saying that I shall consider most of these amendments sympathetically and agree to Amendment No. 113, perhaps the Committee will forgive me if I do what I think is my duty: to explain our attitude to each of them. There is some point in that; it is not simply resistance.

The clauses we are dealing with broadly take forward existing provisions which confirm the normal presumption against enforcement by a person who enters into an agreement as a result of his own illegal activity or who enters into an agreement in the knowledge that the agreement results from the illegal activity of another person. However, the clauses provide some discretion for the courts to enforce where the person seeking to enforce can show that he reasonably believes that he was not acting illegally or did not know that the agreement resulted from the illegal activity of another and where the court considers enforcement just and equitable.

The purpose of this is to provide a greater degree of certainty than would be provided by the general law. The boundary of what constitutes regulated activity is

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inevitably quite grey in some place. However, the point has been made to us that there are bound to be hard cases and that even the degree of discretion we have allowed the courts may not provide enough leeway.

We acknowledge that. We have been considering further amendments to these clauses but thought it would be useful to consider the matter once more in debate. Broadly speaking, we agree that the principal test for the court should be whether enforcement would be just and equitable. However, unlike the amendments tabled by the noble Lord, Lord Kingsland, we think that the courts should be directed in particular to have regard to whether the person reasonably believed he was not breaching the prohibition or did not know that the agreement resulted from a breach by a third party.

The compromise would still send a strong signal to the courts that reasonable belief or knowledge were factors to be accorded particular significance but would provide the kind of pressure valve which the noble Lord, Lord Kingsland, is seeking to enable the court to respond to a hard case and, where appropriate, allow enforcement.

On that basis, I invite the noble Lord not to move Amendments Nos. 109 to 111, 114 and 117 to 119.

As regards Amendments Nos. 119A and 119B, to which the noble Lord did not speak but which are included in the group, I hope that by establishing "just and equitable" as the principal test we will meet the concerns that lay behind two of the more recent amendments, Nos. 119A and 119B. They were printed during the weekend.

Naturally, the question of whether the illegal promotion actually misled the purchaser in any way is something that the courts might consider. But we deliberately moved away from tests that focused on the content and effect of the promotion as a result of debates in another place.

The main factor we are proposing should be taken into account by the court in determining what is just and equitable is whether the provider either reasonably believed that he was not breaching the financial promotion prohibition or did not know that he was doing business as a result of an illegal promotion by others. If the provider cannot satisfy those tests, he is in a sense complicit in the offence and it is not clear why the courts should be directed towards enforcing the contract.

The same argument applies to a test which, like Amendment No. 119B, depends on what might have been envisaged when a breach of the financial promotion prohibition occurred. If the provider does not reasonably believe that he is not committing a breach, or knows that the agreement results from a breach by another, what may or may not have been envisaged by the person committing the breach should be neither here nor there.

We have dealt with the substance of Amendment No. 116A in the context of Clause 19. However, we shall take away that amendment, too, and consider it further.

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As regards Amendments Nos. 105 onwards relating to "counter-party", we have reflected on the points that have been made about the potential confusion arising from the use of the term "purchaser" to denote the other party to the agreement. We accept that in some circumstances that party might be selling. To some extent, that does not matter as the term "purchaser" is just a label. However, we can see the scope for confusion. We are not convinced that simply switching to the label "counter-party" resolves the situation.

We are not against the word "counter-party"--it may be the right word--but, arguably, it is confusing for one party to be a counter-party but not the other. That is not how the term is usually used. We shall resolve the potential confusion with the amendments we bring forward at Report stage. I hope that that will enable the noble Lord to withdraw Amendment No. 105 and not move Amendments Nos. 106 to 108 and 112. As he rightly said, Amendment No. 113 corrects a minor error in the drafting and I am grateful to him for tabling that amendment.

Penultimately, I refer to Amendment No. 115, which concerns the definition of deposit-taking. I am afraid that I cannot accept this amendment, although I appreciate the intentions of proposing a definition. We have sought deliberately not to define deposit-taking. The existing provision works as it stands. The clause applies to deposit-taking which is carried on in contravention of the general prohibition. The extent to which the activity of deposit-taking comes within the scope of regulation will be defined by the regulated activity order made under Clause 20. It is that definition that is important for these purposes. Whatever the regulated activity order defines as being deposit-taking and carrying on a deposit-taking business for the purposes of the general prohibition will and should have the same meaning here.

Perhaps I may explain why it is so important to keep these concepts tied together. The existing concept of a deposit-taking business for the purpose of the Banking Act includes various exclusions and exemptions which will be carried forward into the orders that we shall be making. For example, the current definition excludes the issuing of commercial paper, subject to various conditions. We do not want to create a situation whereby commercial paper issues that were perfectly legal would nevertheless become unenforceable under this clause. It may be argued that that is why the amendment refers to the "regulated activity" of accepting deposits.

However, if that is the effect of those words, that definition merely applies whatever definition is included in the regulated activities order, which is the position that would hold anyway. In that case, what benefit is gained by including the definition here? The hidden danger is that this apparently substantive definition will create uncertainty. A separate definition which applies to this clause only is bound to create some risk of divergence between this clause and the regulated activities order. I hope that I made it clear in

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my response to a question from the noble Lord, Lord Northbrook, why it is being done in the form of an order, rather than on the face of the Bill.

Amendment No. 116 would introduce a new clause dealing with deposit agreements entered into as a result of illegal regulated activity by a third party. The need for third party provisions in Clauses 25 and 26 arises from the fact that advising on and arranging deals in investments are currently regulated activities and will remain so under the regulated activities order. In the case of deposits, it is only the activity of accepting deposits that is intended to be a regulated activity. As now, there will be no third party activities, such as advising or arranging, which could be carried on by a third party in contravention of the general prohibition in relation to deposits. Therefore, equivalent third party provision would be an unnecessary complication.

We accept in principle the main thrust of many of the opposition amendments in this group. Perhaps I may summarise by saying that we wish to consider further Amendments Nos. 105 to 108 and 109 to 112. We propose to accept Amendment No. 113 now and to consider Amendment No. 114. We must resist Amendments Nos. 115 and 116. We propose to consider further Amendments Nos. 116A, 117, 118 and 119, but we must resist Amendments Nos. 119A and 119B. Where we are considering further, we shall bring forward amendments on Report which will give the courts broader discretion than is the case under existing law or has been envisaged in the provisions to date.

We are grateful to noble Lords for making this debate possible and for enabling us to make what I believe will be agreed progress on these matters.

11.15 p.m.

Lord Kingsland: I am most grateful to the noble Lord for his careful response to this long line of amendments, and especially so for allowing me such a high hit rate. I am not talking about hitting the Minister; I am talking about hitting the statute book. However, I must express not only disappointment but a certain amount of surprise at what he said about Amendment No. 115; and I want to go away and think about that. It is a matter to which I may return at Report stage. I know that the Minister will understand that. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 106 not moved.]

Clause 24 agreed to.

Clause 25 [Agreements made through unauthorised persons]:

[Amendments Nos. 107 and 108 not moved.]

Clause 25 agreed to.

Clause 26 [Agreements made unenforceable by section 24 or 25]:

[Amendments Nos. 109 to 112 not moved.]

Clause 26 agreed to.

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Clause 27 [Deposit-taking in breach of general prohibition]:


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