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Lord Goldsmith: My Lords, before the noble and learned Lord sits down, does he agree that questions of penalty for market abuse fall on the side of criminal responsibility with the same concepts applied and are quite distinct from the question of liability in civil law for damage caused?

Lord Fraser of Carmyllie: My Lords, I thought I made it quite clear that I was not wholly persuaded that the idea of market abuse, as set out in this Bill, could always be, in all circumstances, civil, as has sometimes been said. The only reason why the Government seek to introduce this provision is that such statutory offences as insider trading have been unsuccessfully prosecuted in the past and we have to find an alternative device to catch those who have acted in such a way.

That may be my opinion. But I have been repeatedly told by the noble Lord's Front Bench that I am wrong in that; that the regime that is to be set up is a civil one and that it is in the context of believing that they are setting up a civil regime, when it comes to the

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application of a penalty and what amount should be imposed, that the Government have said a legitimate feature to which regard should be had is the degree to which the conduct was reckless.

Lord McIntosh of Haringey: My Lords, this amendment or something like it was shot down in flames in Committee and has been shot down in flames again. I am astonished that the noble Lord should seek to raise it again.

As has been made clear, this is a criminal law concept which is unsuitable for application to civil liability. In introducing the amendment the noble Lord, Lord Kingsland, made reference to the number of occasions, which I do not for a moment deny, on which the word "reckless" appears in the Bill. But if he looks at those references, they either relate to misconduct or, more frequently, to offences; in other words, they apply to cases where the criminal law is involved or to the difficult area--I acknowledge this to the noble and learned Lord, Lord Fraser of Carmyllie--of where market abuse cases could be ruled as being criminal under the European convention. I have never denied that. I have always said it is a matter of degree; that it is in everybody's interest to treat as many of these cases as possible under civil law but that there are some circumstances when it will not be possible to do so.

The effect of this amendment being introduced here, now, in what is clearly an issue of civil liability, quite apart from the powerful speech of my noble friend Lord Goldsmith, was effectively destroyed in Committee. I hope the noble and learned Lord, Lord Donaldson, will not mind my quoting what he said in Committee. On 16th March at col. 1782 of Hansard, he said,

    "I strongly support the idea of immunity ... disgruntled regulated or unregulated persons will be able to go to the courts and say that the FSA has been reckless, whether or not they have any justification. There will be considerable expenditure of money and a considerable diversion of management effort and the like on the part of the FSA".

On the same occasion the noble Lord, Lord Grabiner, said,

    "In my view, if that word [recklessness] was to be introduced, it would inevitably lead to endless litigation ... I believe that the provision would waste valuable court time; it would result in a waste of time for FSA officials; and there would be a corresponding waste of money. Finally, and most importantly of all, it would distract the attention of FSA officials who ought to be concerned with the functions and furtherance of the interests of the FSA in carrying out its statutory responsibilities". --[col. 1785.]

There is clearly a distinction to be made between civil liability of the kind which is at issue in this part of the Bill and the disciplinary or penal regime which is the circumstances in which it has otherwise been used.

Lord Forsyth of Drumlean: My Lords, I thank the Minister for giving way. Perhaps I should declare an interest as a person authorised by the authority.

Is the Minister really saying to the House that as an authorised person my career could be destroyed by action by the authority which was reckless and that

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there should be no right of redress in the courts? That is a monstrous position for any government to take. What possible justification can there be in terms of the authority's interests which stands against those of individuals who can have their careers and their businesses destroyed because of reckless conduct? Can that really be the position of a Labour Government?

Lord McIntosh of Haringey: My Lords, I do not think that the noble Lord could have been listening to the debate as it took place in Committee, or, indeed, to the one in the House today. The whole point of the Financial Services Authority is to stop people's careers, businesses and finances being destroyed by bad behaviour on behalf of those in the financial community. The authority has been established to protect the consumers of financial products and to protect the reputation of financial markets. If the authority were to be weakened by the kind of case outlined by the noble and learned Lord, Lord Donaldson, and the noble Lord, Lord Grabiner, then the protection that the FSA is designed to provide against mal-practice in the financial community would simply not be available.

Noble Lords opposite have made what seems to me to be not much more than a debating point. A degree of recklessness is, of course, a valid factor in determining the amount of penalties in a disciplinary regime; indeed, that is what the Joint Committee said, and it is perfectly acceptable. However, we should not allow that to detract us from the real issue, which is allowing the FSA to do its job without the constant threat of litigation. If this amendment were to be agreed to, we would be driving a coach and horses through a large part of the effectiveness of the regime of the Financial Services Authority. I do not believe that it is the wish of anyone in this House to do so.

Lord Kingsland: My Lords, the telling interventions of my noble and learned friend Lord Fraser of Carmyllie and my noble friend Lord Forsyth of Drumlean have really limited the number of comments that I need to make to two. First, I should say to the noble Lord, Lord Goldsmith, that it is true that I said we could see the arguments for immunity from negligence. However, as the noble Lord is well aware, we disagree with them. On balance, we think that the FSA should not have immunity from negligence, although we can see the arguments why it should. Indeed, that matter was fully debated in Committee.

Secondly, I turn to the comments of the noble Lord, Lord Goldsmith, about recklessness and the criminal law. Those comments were endorsed by the Minister who said that "recklessness" is a concept that belongs in the criminal dimension and is misplaced in the civil dimension.

I would remind the noble Lord that the use of the word "reckless" in Clause 69(2) is not in relation to market abuse but in relation to powers against "authorised persons". It has been the fundamental philosophy of the Government throughout the proceedings on the Bill--not just in your Lordships' House but also in another place--that the offences

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connected with "authorised persons" and the penalties imposed are part of an exclusively civil regime. Yet in Clause 69 we find that the phrase "deliberate or reckless" is used. Does that mean that the Government have now changed their mind about the legal status of penalties in that clause? Does it mean that the Government have at last seen the light and that they are prepared to classify penalties as criminal under that part of the Bill? If that is so, the Government will have to look again completely at the whole way in which they deal with authorised bodies in disciplinary proceedings. Before I conclude, can the Minister confirm whether or not that is what the Government are now saying?

Lord McIntosh of Haringey: My Lords, I do not think that I have anything to add to what I said in response to the arguments adduced by the noble and learned Lord, Lord Fraser of Carmyllie. I accept that, at one end, there is the possibility of a criminal element.

Lord Kingsland: My Lords, if "recklessness" is confined exclusively to the criminal element, then penalties under Clause 69 must be criminal penalties. If they are criminal penalties, all the protections under Article 6 of the European convention apply; but those protections are not anywhere to be found in this part of the Bill. In those circumstances, I feel compelled to press my amendment and test the opinion of the House.

6.14 p.m.

On Question, Whether the said amendment (No. 29) shall be agreed to?

Their Lordships divided: Contents, 83; Not-Contents, 139.

Division No. 2


Alexander of Weedon, L.
Allenby of Megiddo, V.
Anelay of St. Johns, B.
Astor of Hever, L.
Attlee, E.
Baker of Dorking, L.
Blackwell, L.
Blaker, L.
Blatch, B.
Boardman, L.
Bowness, L.
Brabazon of Tara, L.
Bridgeman, V.
Brougham and Vaux, L.
Burnham, L. [Teller]
Byford, B.
Campbell of Croy, L.
Clark of Kempston, L.
Colwyn, L.
Cope of Berkeley, L.
Courtown, E.
Cowdrey of Tonbridge, L.
Cranborne, V.
Crickhowell, L.
Dixon-Smith, L.
Eden of Winton, L.
Elliott of Morpeth, L.
Elton, L.
Erroll, E.
Feldman, L.
Ferrers, E.
Fookes, B.
Forsyth of Drumlean, L.
Fraser of Carmyllie, L.
Gardner of Parkes, B.
Glentoran, L.
Goschen, V.
Hambro, L.
Hanham, B
Harris of Peckham, L.
Haslam, L.
Henley, L. [Teller]
Higgins, L.
Hogg, B.
Holderness, L.
Home, E.
Howe, E.
Hunt of Wirral, L.
Jenkin of Roding, L.
Kimball, L.
Kingsland, L.
Kirkham, L.
Lamont of Lerwick, L.
Liverpool, E.
McConnell, L.
Mackay of Ardbrecknish, L.
Marlesford, L.
Mayhew of Twysden, L.
Miller of Hendon, B.
Monro of Langholm, L.
Monson, L.
Murton of Lindisfarne, L.
Northesk, E.
Norton of Louth, L.
O'Cathain, B.
Onslow, E.
Park of Monmouth, B.
Pearson of Rannoch, L.
Plummer of St. Marylebone, L.
Renton of Mount Harry, L.
Roberts of Conwy, L.
Saatchi, L.
Saltoun of Abernethy, Ly.
Seccombe, B.
Skelmersdale, L.
Stewartby, L.
Strathclyde, L.
Thatcher, B.
Thomas of Gwydir, L.
Trefgarne, L.
Vivian, L.
Warnock, B.
Young, B.


Ahmed, L.
Alderdice, L.
Alli, L.
Amos, B.
Ashley of Stoke, L.
Ashton of Upholland, B.
Avebury, L.
Bach, L.
Bagri, L.
Barker, B.
Barnett, L.
Bassam of Brighton, L.
Blackstone, B.
Borrie, L.
Bradshaw, L.
Bragg, L.
Brett, L.
Brooke of Alverthorpe, L.
Brookman, L.
Brooks of Tremorfa, L.
Bruce of Donington, L.
Burlison, L.
Carter, L. [Teller]
Christopher, L.
Clarke of Hampstead, L.
Clement-Jones, L.
Clinton-Davis, L.
Cocks of Hartcliffe, L.
Crawley, B.
David, B.
Davies of Coity, L.
Davies of Oldham, L.
Dean of Thornton-le-Fylde, B.
Desai, L.
Dholakia, L.
Diamond, L.
Donaldson of Lymington, L.
Donoughue, L.
Dormand of Easington, L.
Dubs, L.
Elder, L.
Evans of Parkside, L.
Falconer of Thoroton, L.
Falkland, V.
Farrington of Ribbleton, B.
Faulkner of Worcester, L.
Filkin, L.
Fitt, L.
Gale, B.
Geraint, L.
Gladwin of Clee, L.
Goldsmith, L.
Goudie, B.
Gould of Potternewton, B.
Graham of Edmonton, L.
Hamwee, B.
Hardy of Wath, L.
Harris of Greenwich, L.
Harris of Haringey, L.
Harris of Richmond, B.
Harrison, L.
Haskel, L.
Hayman, B.
Hilton of Eggardon, B.
Hollis of Heigham, B.
Howells of St Davids, B.
Howie of Troon, L.
Hoyle, L.
Hughes of Woodside, L.
Hunt of Kings Heath, L.
Irvine of Lairg, L. (Lord Chancellor)
Janner of Braunstone, L.
Jay of Paddington, B. (Lord Privy Seal)
Jeger, B.
Jenkins of Putney, L.
Joffe, L.
Judd, L.
King of West Bromwich, L.
Kirkhill, L.
Lester of Herne Hill, L.
Lipsey, L.
Lockwood, B.
Longford, E.
Lovell-Davis, L.
Macdonald of Tradeston, L.
McIntosh of Haringey, L. [Teller]
Mackenzie of Framwellgate, L.
Mallalieu, B.
Massey of Darwen, B.
Merlyn-Rees, L.
Mishcon, L.
Molloy, L.
Morris of Castle Morris, L.
Morris of Manchester, L.
Murray of Epping Forest, L.
Newby, L.
Nicol, B.
Peston, L.
Phillips of Sudbury, L.
Pitkeathley, B.
Prys-Davies, L.
Ramsay of Cartvale, B.
Randall of St. Budeaux, L.
Rea, L.
Rendell of Babergh, B.
Renwick of Clifton, L.
Richard, L.
Rodgers of Quarry Bank, L.
Russell, E.
Sainsbury of Turville, L.
Scotland of Asthal, B.
Serota, B.
Sharman, L.
Shore of Stepney, L.
Simon, V.
Simon of Glaisdale, L.
Smith of Gilmorehill, B.
Stoddart of Swindon, L.
Strabolgi, L.
Symons of Vernham Dean, B.
Taylor of Blackburn, L.
Taylor of Gryfe, L.
Thomas of Walliswood, B.
Thornton, B.
Tope, L.
Tordoff, L.
Turner of Camden, B.
Uddin, B.
Varley, L.
Walker of Doncaster, L.
Warner, L.
Wedderburn of Charlton, L.
Whitaker, B.
Whitty, L.
Williams of Crosby, B.
Williams of Elvel, L.
Williams of Mostyn, L.
Woolmer of Leeds, L.
Young of Old Scone, B.

Resolved in the negative, and amendment disagreed to accordingly.

13 Apr 2000 : Column 335

6.24 p.m.

Clause 2 [The Authority's general duties]:

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