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Lord Boardman: My Lords, I have known the Takeover Panel for many years, even in the days when its chairman was the noble and learned Lord, Lord Shawcross. Since then the Takeover Panel has had other distinguished chairmen. For many years I sat on that panel. I very much regret that the Takeover Panel has been hooked on to the FSA. The Takeover Panel has worked brilliantly in the most controversial areas where lawyers have not been allowed to participate. That is not a blessing with which all lawyers agree. However, it has the considerable advantage of enabling the panel to get things done speedily. Quite often the announcement of a controversial takeover will be made early in the morning and the panel meets during the day or night. A decision will be made and the code honoured, and that has been one of the great successes of the City. I very much regret that the Takeover Panel is to become bogged down in what is bound to be a mass of bureaucracy, legal cases and time-consuming arguments as a result of involvement in this Bill.

The amendment moved by my noble friend is intended, and rightly so, to reduce the amount of interference in, and give greater freedom to, the Takeover Panel. I applaud it. In many ways I should like it to go further. I support the point just made by the noble Lord, Lord Newby. If the Takeover Panel and FSA can agree with the Treasury on a system which is a continuation of what has happened in the past the panel will be able to hear the facts. Businessmen and others who understand what is at stake can reach a rapid decision, which has always turned out to be to the advantage of the shareholders concerned, rather than become involved in long drawn

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out litigation, as is inevitable when these matters are hooked on to the Bill. I support my noble friend's amendment, although I should like the Takeover Panel to be removed altogether. I understand that that now cannot be. I hope that the system can be given the degree of flexibility which this amendment provides to enable the panel to prosper and serve the industrial sector of this country well in the years ahead.

Lord Donaldson of Lymington: My Lords, I have not had the long experience of the Takeover Panel that other noble Lords, such as the noble Lord, Lord Boardman, have had. The panel swam into my ken when a company called Datafin applied for judicial review of the Takeover Panel. The argument in that case was a fascinating one. It was said on behalf of Datafin that one could not have a body of that kind with powers of life or death, albeit indirectly, over people operating in the City without some external control by the law. As I recall, the noble Lord, Lord Alexander of Weedon, appeared for the Takeover Panel. He said that, first, there was no jurisdiction to review the Takeover Panel judicially because it had no statutory base. In that he was plainly right, although it was not a very appealing argument. Secondly, the noble Lord argued that the Takeover Panel could not operate if there was a possibility of the courts intervening, particularly bearing in mind that the Takeover Panel could on occasion work at lightning speed. He asserted that it would be prevented from so doing if there was an application pending before the courts.

In that case the court decided to ignore the argument that it had no jurisdiction and indulge in a little judicial engineering, in which I take some pride. We decided that the panel could be judicially reviewed but that it never would be in the course of a bid unless the conduct of the panel had been previously condemned by the court in leisurely proceedings following a bid. I believe that that was a very good approach, and the courts have followed it ever since on the rare occasions that anyone has sought to involve them. The involvement of the courts inevitably leads to every kind of tactical manoeuvre and will kill almost any bid stone dead. I am sure that the courts retain that policy at the present time.

However, we must do something about the FSA. If one studies the amendments in broad brush outline, not in detail, one finds that they achieve exactly what the courts have achieved. There is a safe harbour for someone who complies with the City code, and for the moment that is it. If the FSA disagrees it will say to the Takeover Panel that it has got it wrong. One of the great features of the panel is its ability, without the intervention of government or either House of Parliament, to alter the City code. I expect that, as a result of discussions, the City code would be altered and in future the safe harbour would be removed. That was exactly what the courts decided in Datafin and what they have done ever since. If it appears to the FSA that the Takeover Panel is being singularly unresponsive, which is a very unlikely event, it can

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alter its policy so that the matter is taken on board straight away, and Parliament will give it the authority to do so.

It has been suggested that there should be a code devised by the parties to decide when the safe harbour applies or the FSA should exercise its discretion. I do not think that can be done, because the situations are so varied that you will always be legislating for the train which has already left the station. It really would not work. This, I think, would work. Perhaps there are refinements which could be introduced but, apart from anything else, it is important that the authority should have statutory power to adopt a policy of masterly inactivity, which of course is provided by the second amendment.

If you do not have that, you will have trouble with people going to the courts and saying either that they have confined their discretion in a way that is impermissible or that they have never thought about the matter at all. They need that even if they get nothing else, and I hope that the House, if its opinion is tested, will insist on putting these amendments into the Bill.

Lord Elton: My Lords, in considering the very illuminating remarks of the noble and learned Lord, Lord Donaldson, I hope that the Minister will consider the nature of events with which the Takeover Panel is customarily involved. My noble friend Lord Boardman has already alluded to this and I have seen it at first hand as a member of the panel in the past.

The fact is that to think of the panel as exercising the functions of a justice of the peace or a judge is to misunderstand the work that it does. The panel is more in the position of a tennis umpire who has to make immediate decisions which need to be upheld and which need to be practical. That is exactly what the panel is designed to do and what it cannot do if another authority is at any stage able to interpose and stop the game. It would be as absurd for that to happen in a takeover battle as it would be on the Centre Court at Wimbledon

In thanking the noble and learned Lord for making this so clear, I ask the noble Lord, Lord Newby, if he has a moment, to consider whether it is right for the parties which are to be regulated by this legislation actually to make it impossible to perfect the legislation by a failure to agree on how it should operate. I endorse his request that the greatest pressure should be brought to bear on those who need to declare their position on the way it will work so that that agreement shall be available before Third Reading and so that the second of these amendments--or something very like it--can also be incorporated. I can see no reason for delaying the first.

7.15 p.m.

Lord Stewartby: My Lords, I rise briefly to support my noble friend Lord Saatchi and others who have spoken about the need to resolve this matter. I have read and re-read the comments of the noble Lord,

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Lord McIntosh, in Committee. He said then that he did not really like the amendments because of their general approach to the Bill, but that he accepted that there was a problem here which needed to be addressed.

The difficulty in which your Lordships' House finds itself now is that we have no idea how the Government think that this issue should be resolved. It is recognised by all parties that there is an issue here which needs to be resolved, but we have reached the last day of the Report stage on legislation which over many months has been under intensive discussion and consideration in another place and in this House; yet we do not seem to be any further forward on getting an idea of how the Government or the FSA think that this issue should be dealt with.

I think the very least that the noble Lord owes us tonight is a commitment to produce the Government's view on how this matter should be dealt with before we get to Third Reading. Nobody is going to pretend that specific amendments tabled by Opposition Members on technical issues are necessarily going to be all that they should be; nor that they should necessarily be incorporated into a complex Bill of this kind as they stand on the Marshalled List.

However, I do not think that anyone denies that the situation, if not resolved, will lead to a frustration of much of the work and functions of the panel. As a number of your Lordships have said, there are two ways in which the panel's proceedings could be frustrated. One is by the injection of uncertainty. If the say-so of the panel on a matter of dispute is not to be the substantive decision on that, uncertainty could be introduced. Delay is the other danger, and I feel that is the one that would actually be more frequently used. In the very highly charged circumstances of a contested takeover bid, one of the few weapons which the target may have is to spin out the matter in the hope of causing more uncertainty among investors.

It is not just the interests of shareholders which may be damaged by this, but also the interests of the market as a whole. The market's functioning can be damaged by prolonged uncertainty, particularly when major companies are involved, in a way which can actually lead to the opportunity for market abuse elsewhere. The doubt about the status of a transaction is one of the circumstances in which malpractice may appear.

We are all in this House absolutely committed to dealing with issues of market abuse. We realise that there is a potential conflict here between statutory powers of a reserve form in the hands of the Financial Services Authority and the need for speed and decisiveness by the panel in the heated circumstances in which it is called upon to operate.

This has been a very good-natured debate, but I should not want the Government to feel that the good nature with which the debate has been conducted means that there is not here a very serious issue which has not so far been dealt with and on which, by this stage in the Bill, we ought to have had much more specific guidance from the Treasury Bench. I hope that the noble Lord who responds will be able to give us at

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least greater insight into the Government's thinking on the way they will deal with this. Better still, I think it should amount almost to a minimum commitment that something very much more specific will made available to your Lordships before Third Reading. It may be that the suggestions of the noble and learned Lord, Lord Donaldson, could be built on by the Government and formulated in a way which would fit these particular circumstances. That something needs to be done is, I think, undeniable. I think that that is the feeling in all quarters of your Lordships' House. I very much hope that the Government will find it in them to speed up the consideration of this issue and that they will come forward with a workable solution.


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