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Lord Forsyth of Drumblean: My Lords, I am grateful to the Minister for giving way. He may recall that I intervened when we discussed this matter earlier and that I asked him specifically about the issue of judicial review. He replied that he did not think that judicial review would succeed. Is not the Minister missing the point? People might apply for judicial review--it may not be successful in the courts-- and that in itself will introduce delay, which could be used tactically in order to frustrate the process of the bid. These are the

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kinds of tactical issues which may be used by advisers that are causing concern to the Takeover Panel and to people in the City.

Lord McIntosh of Haringey: My Lords, it is of course possible that after the legislation has been passed someone may try that on, but the courts would get wise to that very quickly indeed. As the noble Lord, Lord Forsyth, agrees, it is hardly likely that the judicial review itself or an injunction would succeed. In any case, it is unlikely that an injunction would succeed in upsetting the timetable of the takeover bid. It would be an injunction on the abuse, not one which brought to a halt the process of the takeover bid.

I presume that that is why, as far as I am aware, no one has ever pressed the FSA to seek injunctions under Section 61 of the Financial Services Act alleging possible breach of the market manipulation offence. The fear of the noble Lord, Lord Forsyth, is one which could have been expressed at any time since the passing of the Financial Services Act 1986. The ability to seek an injunction is available under Section 61 of that Act; it has never been sought.

I move now to government Amendment No. 40.

Lord Pearson of Rannoch: My Lords, before the Minister moves away from that point, is there not a new factor in this argument? The Government have virtually signed up to the takeover directive, which therefore leaves the Luxembourg court lying in the background of the process that the Minister said has not yet taken place. May that not be a further encouragement to the kind of route suggested by my noble friend Lord Forsyth?

Lord McIntosh of Haringey: My Lords, I made it clear in my opening remarks that the Government support the work of the Takeover Panel and we believe that it has done a good job in regulating the conduct and process of takeovers. We want it to continue doing that job. Whatever action may be taken by the European Union could, of course, affect British legislation, regardless of whether this or any other amendment were included in the Bill. It has no effect on the provisions we are now making.

Amendment No. 40 seeks to establish a proper relationship between the Takeover Panel and the FSA. We have to do that because the Takeover Panel is at the moment acting legally by any standards and with the full support of government.

Perhaps I may now turn to government Amendment No. 40. We have reflected further on the points made by noble Lords in the previous debate. We have looked carefully to see whether anything could properly be added to the Bill to deal with the concerns that have been raised. I certainly share the concerns of the noble Lord, Lord Newby, about the dangers of duplication and the issue of fairness; that people who comply with one set of rules should not be pursued under another set of rules. As he said, it is difficult to see an argument for pursuing someone who has

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complied with the City code in the circumstances in which the safe harbour provisions already exist in relation to the market abuse code.

While we continue to believe that administrative arrangements will prove robust, we have decided to introduce a new clause (Amendment No. 40) which will allow the FSA to place provision in its code of market conduct to the effect that,

    "behaviour conforming with the City Code...does not amount to market abuse".

The amendment allows the FSA to specify conditions of limitations, as do the amendments tabled by the noble Lords, Lord Saatchi, Lord Kingsland, Lord Newby and Lord Sharman. Our amendment is different from those tabled by those noble Lords in two important respects. First, our amendment provides that the FSA has to have the Treasury's approval before it can include such provisions in its code of market conduct. If the FSA were to include such a provision, it would effectively be handing over control of safe harbours in this important area to the Takeover Panel. We believe that it is right that the Treasury should be involved in such a decision by the FSA--a body for which it is answerable in Parliament--to delegate the responsibility which Parliament has given it in this area to a non-statutory regulator; that is, the Takeover Panel. Treasury Ministers will, of course, be answerable in Parliament for any decisions they make.

The second and most important difference is that, unlike Amendment No. 63, the provision allows the FSA to promote a safe harbour for behaviour in conformity with the City code and not in conformity with whatever the panel may say. If one follows through the definition in subsection (6), the way in which Amendment No. 63 would work is to allow the FSA to provide a safe harbour which is, in the opinion of the panel--and this includes any revised opinion; any changes in the opinion formed by the panel--

    "in conformity with the City applied by the Panel and as amended from time to time by the Panel.

This means that in the area of takeovers, market abuse is whatever the panel at any time says that it is. I have received a letter from Mr Drayton, the director general of the panel--I believe other noble Lords have also received it--in which he describes this as,

    "an amusing way of characterising the safe harbour proposal".

Unlike Mr Drayton, I do not find this amusing at all.

In the letter he prefers slightly different wording, but all he is doing is dressing up the stark fact that if the definition in this amendment were ever to find its way onto the statute books, abuse in this area would be what the panel says it is. I am astonished that any noble Lord should contemplate that. What a fuss there would be if we had said that market abuse was whatever the FSA says it is, but in this area at least the FSA can change its mind on a case-by-case basis without consulting or being accountable to anyone.

I thought that the noble Lords, Lord Saatchi and Lord Kingsland, had realised this in tabling Amendment No. 64, which, although substantially the

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same as Amendment No. 63, does not provide that abuse is whatever the panel says it is but is in line with the approach in our amendment.

I have been asked to confirm whether "conformity with the City Code" in our amendment means "in conformity with the City code as applied by the panel". The answer to that is "yes". The City code is the code which is drafted and applied by the panel, and no one else. The very nature of the code and the way in which it is operated in practice means that the question of whether behaviour conforms with the City code will depend to a considerable extent on the panel and its interpretation of the code. But "in conformity with the City code" does not mean that the FSA will be unable to take action unless the panel says it can. That gets us into the kind of territory covered by other opposition amendments which we cannot support. This, as I explained, would allow the panel to say what is and is not market abuse on a case-by-case basis. The safe harbours for behaviour which conforms with exchange rules will not work like this, and no one has suggested that they should.

The FSA will be the body to which Parliament has entrusted the operation of the market abuse regime. It is only right that it should take the initial view on whether action should be taken against a person under Part VIII of the Bill. Given what I have said about the nature of the code and the panel's role in interpreting and applying it, I would naturally expect the FSA to take the panel's view before it decided whether behaviour fell within the safe harbour which the government amendment would enable it to provide. It would be foolish if it did not. In what I would expect to be a very rare event--namely, where the FSA and the panel disagreed on what "in conformity with the code" meant--it would be open, under our amendment, for the FSA, as the primary regulator, to take action. But let us not forget the background in which it could take action.

First, the person accused could call the panel to give evidence that his behaviour was in conformity with the City code. That would clearly carry a great deal of weight. Furthermore, the test of whether market abuse has taken place rests on the view of the regular user of the market as to whether expected standards have been met. Clearly, the panel's views will be important in determining that question. As a result, it is clear that any disputes between the panel and the FSA on whether behaviour was or was not in conformity with the City code would be very rare. But where such a dispute did arise, it is right that the question should be capable of being tested before the tribunal to be established under the Bill. I would expect the tribunal and, if the matter came before them, the higher courts, to attach due weight to the panel's views in accordance with established case law. None of this needs interfere with the timetable of the Bill, which is the crucial issue as the panel sees it.

I hope noble Lords will agree that our amendment strikes the right balance here, given the concerns that have been expressed and which I have not, despite my best efforts, managed to convince all noble Lords are

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unfounded. The amendment provides what I might call a "safety valve" and in that respect is entirely in line with Amendment No. 63. I said at the beginning that I hoped I would not detain your Lordships too long. I have detained your Lordships too long. I have much more to say about the various opposition amendments, but it is probably better if I do not say it until they have been moved. I beg to move.

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