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The single principle which now confronts us is not the safe harbour provision but an important matter which arrived in this House at the latest possible stage of our consideration of the Bill; namely, who decides whether the takeover code has been followed in cases of possible market abuse.
The two options are either to argueas in the Alexander amendmentthat the Takeover Panel should always have the final say; or to sayas in the government amendmentthat the FSA must keep itself informed about the way in which the panel interprets the code. The government amendment recognises that the Takeover Panel will remain the principal interpreter of a code on a day-to-day basis but, consistently with their view about the primacy of the FSAit is a view which we, on these Benches, have accepted, in particular in respect of the gatekeeper proposal which was discussed on a number of occasions in this Chamberthat the FSA will have the final word. This amendment is a significant improvement on the amendment which we considered at Third Reading because the role of the panel is recognised on the face of the Bill.
Perhaps I may make one point about referees and umpires. When there is a difficult issue in Rugby League and cricket (as there were as regards a number of run-outs at Lords on Saturday) there is an immediate reference to a second, higher authoritya television replay. While it is always dangerous to take sporting analogies too far, one can argue either way in respect of best practice on the sports field.
The amendment of the noble Lord, Lord Alexander, has the benefit of clarity which, as he kindly pointed out, I sought at Third Reading. However, the amendment inevitably cuts across the principle that at the end of the day the statutory body, the FSA, should prevail over the non-statutory Takeover Panel. The ECHR implicationsthe noble Lord did not refer to thembecame apparent only at a late stage. They could significantly undermine his amendment.
The question before us today is somewhat broader than simply whether the Alexander amendment is technically preferable. It is whether this is an issue on which we wish to initiate a ping-pong procedure with another place. As noble Lords are aware, on these Benches, we have no aversion in principle to sending Bills back to the Commons for a second time. We have done so previously in this Parliament, and we may well do so again before this Session ends. We accept, however, that this power should not be used lightly,
The tests which we have to apply in deciding whether or not a ping pong should be initiated are those of principle and substance. We believe that we should only be prepared to send a Bill back to the Commons on an issue of clear principle and major substance. How then does this issue fare against those tests?
First, on the question of principle, the principle covered by this amendment is whether there should be safe harbour provisions in respect of the takeover code. That is the subject of this amendment, and that is the key concession which has been made. The question of who interprets the code requires a judgment to be made between the rival merits of two bodiesthe panel and the FSAwhich in any event are required to co-operate closely on the whole question of countering market abuse. In our view, that is a matter of judgment; it is not essentially a matter of principle. The issue, in our view, does not pass the test of being a matter of major principle in the context of the substance of this amendment, namely, safe harbour.
Secondly, how much substance is there in this issue and how great is the difference between the Government's amendment and that proposed by the noble Lord, Lord Alexander of Weedon? It has been our view throughout the debates on this issue that too much has been made of the possible damage which could be caused to the regulatory process in respect of takeovers by the passage of this Bill. Some of the language used in support of the panel's position has, in our view, been exaggerated. I do not believe that it is unanimous City opinion that this House should die in the ditch, back and forth to the Commons, in order to get the Alexander amendment through.
The difference between the amendment proposed by the noble Lord, Lord Alexander, and that of the Government will only have a significant impact on the way in which takeovers are regulated if the FSA and the panel fail to find a sensible modus operandi in dealing with potential market abuse during the conduct of takeovers. There is no reason to believe that they will not do so. We believe that when this Bill is on the statute book it will be possible for the FSA and the panel to reach working arrangements which will minimise the scope for mischievous legal action to gain a tactical advantage during takeover bids. We therefore believe that this issue fails the major substance test.
This Bill has occupied a very large amount of parliamentary time. It has been significantly improved during its passage through your Lordships' House. The time has now come to get it on to the statute book to enable the FSA and the panel to get on with their job. We shall, therefore, not support Amendment No. 180B but will support Amendment No. 180A.
Lord Grabiner: My Lords, for good reason, a very large amount of parliamentary time has been devoted to this Bill, as the noble Lord, Lord Newby, mentioned. The Bill is designed to ensure that the financial services industry in this country is properly regulated by the FSA. The FSA is to be the central building block of the new regime, and there is agreement on all sides that that is the right approach.
The essential feature of the amendment proposed by the noble Lord, Lord Alexander of Weedon, is that its object is to enable the FSA to delegate what are vital regulatory powers to the Takeover Panel, although the Takeover Panel is non-statutory, unregulated and essentially an unaccountable body. Needless to say, I have the highest possible regard for the views of the noble Lord, Lord Alexander, not only on this but on almost every subject. However, I believe that on this occasion his amendment is wrong in principle. The FSA should not delegate its powers to the panel.
It has been said that the Bill in its current form involves some implicit criticism of the panel or suggests that it might not be up to it. I do not believe that that is correct. Everybody agrees that over the past 32 years the panel has done an excellent job. One hopes that it will continue to provide a first-rate service. The problem is that the world has changed. Unfortunately, the days when everyone in the City takeover community knew each other have gone. Virtually all the great houses have been gobbled up by American, Swiss, German or Dutch financial institutions. The amounts of money at stake are fabulous and occasionally unpronounceable.
The powers of the panel are, as they always have been, extremely limited. For example, the panel has no direct power to enforce a simple demand for information. Many of us may regret it, but the truth is that these voluntary arrangements no longer reflect the needs of the market place. This Bill is designed to deal with the new global markets and, through the FSA, to sustain London in particular as a world class financial centre.
It has also been said that the Bill in its current form would be a stimulus to mischievous lawyers' activities. It is said that there will be numerous applications for judicial review and that unjustified or frivolous attempts to frustrate bids or to upset the workings of the market place will be made. I do not accept that there is any force in those arguments. I believe that they are more imagined than real.
The Datafin approach was admirably summarised at an earlier stage of the Bill by its inventor, the noble and learned Lord, Lord Donaldson, with the memorable phrase, "masterly inactivity". The FSA can hardly be convicted of unreasonableness if it seeks to achieve its statutory objectives by non-interference in the fast moving circumstances of the 60-day bid period and against the legal backdrop of the principle established in the Datafin case. The common sense of the principle in the Datafin case will surely prevail in the courts. No doubt someone will wish to test the point against the FSA. So be it. There never was any
The other side of this coin is that there will be cases in which the FSA may take the view that it should move in the period during which a bid is taking place. Many of your Lordships will recall the Guinness scandal some 15 years ago, to which the noble Lord, Lord Alexander made reference. If the true facts of that case had emerged in the course of the 60-day period, that would have been an obvious example of market abuse under the Bill.
On that particular point, I digress for a moment. The noble Lord made reference to the Guinness scandal and also to the great success of the panel on that occasion. The panel's conduct in securing a sum of about £80 million for shareholders who had been swindled represented a singularly magnificent achievement in the sense that it had never previously been done nor has it ever subsequently happened. But the truth is that that part of the performance of its role by the panel took place long after the bid period had come to an end, and that is precisely the sort of thing which certainly would not now be dealt with by the panel in any event but would fall precisely within the role of the FSA in dealing with market abuse.
Another example was the bid about three years ago by the Galileo Group for the Co-operative Wholesale Society. Your Lordships may recall that transaction. In that case, an officer of the target company was filmed in a carpark handing over highly sensitive, confidential documents to officers of the predator company. An injunction was granted preventing the predator from using the documents. As a result, the lines of finance for the bid collapsed and the bid was abandoned. That was a case in which the court interfered during the currency of the bid.
It is an example of what would be market abuse under Clause 109. In such a case, one might well expect the FSA to move in the course of the bid. By contrast, it is the kind of case which the panel is not well equipped or designed to deal with, but the FSA would be because of the powers which have been granted to itor which will be granted to it when the Bill becomes law.
It seems to me that the Bill in its current form, as amended in another place, provides a balanced solution to the problem. It will ensure active co-operation between the FSA and the panel. They will together make operating agreements; they will liase with each other; and they will share information.
I believe that in the usual caseby which I mean the vast majority of takeover bidsthings will go on very much as they do today, without interference either from the FSA or from the courts. I believe that we
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