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Lord McIntosh of Haringey moved Amendment No. 274:



("( ) In the application of subsection (9) to Scotland--
(a) in paragraph (a)(ii) for "which the Authority has power to prosecute under this Act" substitute "mentioned in paragraph (a) or (b) of section 384(1); and
(b) in paragraph (b) omit "which the Secretary of State has power to prosecute under this Act".").

On Question, amendment agreed to.

Clause 369, as amended, agreed to.

Clause 370 [Restitution orders in cases of market abuse]:

Lord Kingsland moved Amendment No. 274A:


    Page 194, line 6, at end insert--


("( ) in a case within paragraph (b) of that subsection, to whether the person concerned intended, or might reasonably be presumed to have intended, to commit market abuse;").

The noble Lord said: In moving this amendment, I wish to speak also to Amendment No. 274B. Clause 370 allows the court to impose restitution orders in cases of market abuse. The amendment seeks to bring in the element of intent. It follows the wording which the Government themselves introduced in the case of penalties. We want that to apply equally to restitution because that can be just as open-ended as a financial penalty. The "presumed to have intended" language is to help with proving the intention.

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I turn now to Amendment No. 274B. Clause 371 is concerned with the power of the authority to apply restitution in accordance with Clause 370, which, as we have seen, allows the court to impose restitution orders in cases of market abuse. This amendment also seeks to bring in the element of intent. I beg to move.

Lord McIntosh of Haringey: Where someone has engaged in market abuse Clause 370 allows the courts to order restitution to be paid to those who have lost out as a result of the abuse. Clause 371 gives the FSA itself a similar power to make restitution orders where the market abuse has been engaged in by an authorised person.

In deciding how much it is just for the abuser to pay by way of restitution, the courts and the FSA have to have regard to extent of the loss or other adverse effect. These amendments would require the courts or the FSA to have regard to the extent to which the market abuse was intended, or might reasonably be presumed to have been intended. I am afraid that this is something which I cannot accept. Intent is not a necessary feature of market abuse. We debated this point when we were considering Part VIII of the Bill. The reason for this is clear: the damaging effects of an abuse do not depend on the state of mind of the person concerned, but on the impact it has on markets and consumers. As the noble Lord, Lord Grabiner, said most succinctly when we debated the market abuse provisions last week,


    "the strength of the clause as drafted is that it would oblige people, where appropriate, to err on the side of caution. It means: 'If there is a risk that your conduct may be likely to produce the result that you fall foul of the abuse provisions, you had better beware'".

He went on to say that he had great difficulty,


    "in understanding any justification for saying to those grown-up, sophisticated people that nothing short of intention will do".--[Official Report, 21/3/2000; col.216.]

I entirely agree with those points.

The same arguments as regards intent apply in the case of restitution as they do in the case of the market abuse penalty provisions--indeed, more so. That is not to say that intention or recklessness is irrelevant in the case of market abuse penalties where deterrence is the key concern. There are degrees of culpability, and the fact that someone may have intentionally engaged in abuse is relevant to this. That is why Clause 114, which deals with the FSA's policy on the amount of penalties which can be imposed for abuse, requires the FSA to take into account the extent to which the behaviour was deliberate or reckless.

The situation with restitution is quite different. A restitution order is intended to restore any loss which may have been incurred by others as a result of the abuser's actions. The position here is the same as with breaches of FSA rules which lead to loss for consumers. A failure, for example, to observe a rule which results in a loss to consumers may not be something which an authorised person intended to do;

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however, it would be wrong if in such circumstances the consumer could not get his or her money back. I have to oppose the amendments.

Lord Elton: I am no doubt mistaken, but what puzzles me is that the noble Lord refers to restitution, and indeed the rubric of the clause refers to restitution orders. Restitution has nothing to do with punishment; it is about paying back someone who has lost something. However, at the end of subsection (1)(a) is the word "or". The subsection states that,


    "The court may, on the application of the Authority, make an order under subsection (2) if it is satisfied that a person has engaged in market abuse and ... that profits have accrued to him as a result; or"--

The restitution order appears to be penalising the person or organisation, whether or not the offence has been deliberate, for doing something to his or its own benefit.

Subsection (1)(b) relates to loss suffered by other persons. But it appears from paragraph (a) that there is no need for loss to have been suffered by other persons; merely that the gains have been made improperly. I suppose it can be said that, if someone has gained something improperly, there must have been a loser. But in this case it seems that it is not necessary to identify the loser; otherwise, why are the two factors not linked by "and" rather than "or"?

Lord McIntosh of Haringey: The noble Lord has answered his own question.

Lord Elton: I asked why the provisions are not linked by "and", in which case there would have to be a loser as well as a gainer; whereas with the use of the word "or", there is a gainer in paragraph (a) and a loser in paragraph (b), and they are separated by "or".

Lord McIntosh of Haringey: The noble Lord did answer his own question. He said that if someone has made a profit, someone has made a loss: that is within paragraph (a). The other option is complementary and not otherwise.

Lord Elton: It does not feel very complementary at the moment. If I buy a motor car, there is a profit for the person who made the motor car and there is no loss to me, unless I have been overcharged. It is perfectly possible to make profits without there being losers. I still maintain that this is a very puzzling piece of drafting.

Lord McIntosh: It is not necessary for someone to make a profit from abuse. The important thing is that someone may make a loss, and that may occur under the provisions of either, not necessarily both, of the paragraphs. If I crash my car when I am driving carelessly and I demolish the wall of someone's house, should I only be liable to pay for restoring half the wall because I did not intend the damage? It does not make sense. These amendments are about the amount of

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restitution. They suggest that it should be governed by intent; we are saying that it should not be governed by intent but by the loss.

Lord Kingsland: I think the point my noble friend has expressed so eloquently is that the word "restitution" is used here to cover in law both the notion of restitution and the notion of compensation. Compensation compensates someone for a loss suffered as a result of someone else's action; restitution relates to any improper profit that a person might have made as a result of that action, even if another person suffered no loss.

What my noble friend is saying is that there might be circumstances in which a person not only commits an action which causes loss to someone, and is therefore liable to compensation, but also profits from that action; and in those circumstances, under the rules proposed by the Government, he ought both to compensate and to restitute. My noble friend is saying that the clause does not allow for that; it only allows a person to pay restitution or compensation. Of course, it is possible that I have misunderstood my noble friend; but I believe that is what he was saying.

Lord McIntosh of Haringey: The provision does not say anything of the sort. It says that these are not mutually exclusive circumstances in which there might be a need for restitution. Perhaps I may give examples. Someone might not make a profit from abuse but it might cause loss to others. In the Sumitomo scandal, for example, the abuser actually lost money. The abuse procedures would now catch him; the existing law does not. The profits may have been made at the expense of those of other market users, even if--strictly speaking--there was no loss. It is clear from subsection (8) that restitution must be either to a person from whom the profits enjoyed by the abuser arose or to the person who lost. In the first case there will have been profits earned at the expense of someone else; in the second, an actual loss. Both are covered by the amendment.

10.15 p.m.

Lord Elton: If the clause contains a provision that is purely punitive, the question of intent is not put out of court by the Minister's arguments. He said that with restitution, the question of intent does not arise. The Minister, having backed into a wall while driving carelessly, would have to pay the full sum of repairs, whether or not they were caused intentionally. I accept that, but the drafting of Clause 370(1)(a) makes it clear that there can be cases where profits have accrued and one or more persons have not suffered loss. They are isolated by the word "or". That being the case, the implication is that there are cases where people may not suffer loss as a result of pure profit. We are saying that a person, having acquired profits improperly, should be punished for so doing--and that if it is a

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question of punishment, intent is relevant to the quantity of the punishment. That is all that I am trying to say. I am sorry that it is so difficult to get that across.


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