Examination of Witnesses (Questions 40-54)|
WEDNESDAY 12 FEBRUARY 2003
40. Is it fair for us to assume, then, that
this has not given rise to any problems or concern? For example,
if you have got a Luxembourg incorporation and shares traded only
on the UK market, listed in the UK, that has not given rise to
any concern that the Takeover Panel should have jurisdiction in
a case like that?
(Mr Remnant) There have been such issues. I can remember
one not so long ago of a Swiss company which reincorporated in
the UK and in fact was listed in the UK but had its place of central
management outside the UK. It wanted to come within the jurisdiction
of the Code. In that case, the Executive ruled that jurisdiction
is such a fundamental issue which must be clear: it is beyond
doubt, according to the Code, that that company is not subject
to the Panel's jurisdiction. Jurisdiction cannot be a matter of
choice. It was actually appealed to the full Panel, who upheld
the Executive's decision. But certainly in the context of the
Directive, then clearly the Panel, or the code Committee of the
Panel, will have to look at the jurisdiction of the Code which
would have to be amended if the Directive goes through in its
Lord Neill of Bladen
41. Do you get a situation in the takeover world
which has certainly come up in other fields of company law? I
am thinking particularly of banking, and insurance may be the
same. In some banking examples companies have been deliberately
incorporated in countries with a weak supervisory regime, strong
secrecy laws and a totally ineffective local supervisor. Does
that situation come up in connection with companies which have
shares which have been traded here? Do you get, a sort of collusive
or mala fide registration to get out of a tough local incorporation,
or is that a non-existent problem?
(Mr Remnant) No.
42. It does not happen?
(Mr Remnant) One would think the answer must be that
there must be such instances but I do not think either of us can
actually recall that ever happening.
43. There is Luxembourg, Cayman, the Isle of
Man, all the famous jurisdictions where people register companies.
It does not happen?
(Mr Remnant) No.
44. That is very reassuring.
(Mr Armitage) In fact, I think to get around that
problem, if it ever was a problem, the Prospectus Directive tries
to get at it by defining who the regulatory authority will be,
including in the case of foreign companies listed in the EU.
45. There has been mention already of the proposal
that the Commission should have power to make rules in relation
to the cash consideration to be offered for the shares or the
company being taken over, but there is the same proposal in relation
to the equitable price. It is proposed that the Commission should
be able to make rules relating to that and that it should be able
to make rules relating to the contents of the offer document.
These are, at the moment, matters which are all dealt with domestically
and the proposed power of the Commission to make rules in these
respects would then potentially override the rules made domestically.
I particularly wonder whether the CBI has any comment on this
(Mr Oliver) I think our reply would be the same as
the reply the Panel made in respect of the cash consideration.
If this is a minimum standard Directive that is what it should
set. There is reason for there to be a review of the minimum standards
to see if they are working properly but then amendments should
be made to the Directive in the normal and proper course of making
46. It is a minimum standards Directive in the
sense that it has to be implemented by Member States and, in implementing
it, they may provide for greater regulation than is required by
the European instrument, but so far as the Commission has power
to make rules, those are not going to be limited by any minimum
standard approach necessarily.
(Mr Oliver) But our view would be that you should
not be able to change a minimum standards Directive by subsequent
Commission regulation in the way that is proposed in this Directive.
47. Yes. That might be something of a Trojan
(Mr Oliver) It may.
Lord Neill of Bladen
48. Could I ask a broader question? I am just
trying to get a sort of overview of where we stand in relation
to this Directive. If one looked at it from the narrow UK point
of view, I think what you are saying is that it has got perhaps
in three places some serious defects that you would want to have
corrected. If that were done then it would be tolerable but it
would not confer any great benefits. The world and the City of
London would not be a brighter place as a result of it. You will
have a Directive put into a decent shape. Without those corrections
you would have serious problems, the ones that you have mentioned.
If you look more broadly, which Mr Oliver was arguing right at
the beginning, and look outside the UK and towards the rest of
Europe there are advantages to be gained because you would have
introduced certain minimum standards which are not observed in
some countries which are important markets in trading shares.
Is that a correct view of your evidence, Mr Oliver?
(Mr Oliver) Yes, it is.
49. So there is a sort of balance herewhat
is the overall benefitand Mr Oliver's argument would be
that looking outwards there is a benefit to be obtained. Internally
there is not a great deal to be gained because we are, frankly,
the leaders in the Takeover Code. We have been at it for thirty
years and it is extremely good and very efficient.
(Mr Oliver) If I may respond to that. In some ways
we are almost at a disadvantage in as much as EU firms which are
not incorporated in the UK and subject to the Panel can make an
easy bid within the UK but we do not have the ability because
we have a level playing field in this country and so our market
is open. UK firms wishing to invest in other Member States sometimes
do not have the same advantage. So we have an open market, others
do not, and we prefer to see the open market across the Union.
50. Germany used to be cited. You just could
not really get into a takeover situation with the Germans because
all the shares were held by banks and some were a complete lock
up and totally different from the free movement in the UK scene?
(Mr Oliver) Yes, and so we perceive the benefit not
being in change in the regulation in the UK but in change in regulation
outside the UK, which will be to the benefit of UK firms wishing
to invest in those other Member States.
Lord Lester of Herne Hill
51. Following up that question, it seems to
me, I do not know whether you agree, that the Commission's explanatory
memorandum on its third page summed up quite well the wider European
benefit when it talks about international competition and a single
capital market, the very divergent national rules, the problems
that creates, the uncertainties, and so on. I am looking at the
second and fourth paragraphs on page 3. Broadly speaking, that
seems to me to be a fair summary of the advantages. I do not know
whether the CBI would agree with that?
(Mr Oliver) Yes, we would.
(Mr Armitage) We would but it could also go further,
but we think it is just about right at the moment. We do agree
on one or two major points made by the Takeover Panel, for instance
the place of incorporation, etcetera. At the moment that could
be a recipe for chaos but hopefully that will be fixed.
(Mr Oliver) The split jurisdiction.
52. Thank you. You have given us a great deal
of help on a number of points. Is there anything else you think
we should direct our attention to in considering this issue, any
as yet untouched on problems that we must pay attention to?
(Mr Armitage) We talked quite a bit about multiple
voting rights and you were asking me what I thought would happen
on this and I said that of course the game is not yet over and
we will have to see what happens. At the public hearing at the
European Parliament, which Mr Remnant and I both went to, there
was quite a lot of discussion as to whether or not, bearing in
mind that American companies do have multiple voting rights and
some of the companies are quite big, if this goes through the
breakthrough on multiple voting rights should be open to American
companies. I think we can expect more of that in the dialogue.
Chairman: That is an interesting thought. Thank
Lord Neill of Bladen
53. I am interested in this justiciability question
covering Article 4(6). The language of that is extraordinarily
broad and purports to give to Member States a very big power to
say you are not going to have legal proceedings in this, that
or the other type of case. I will not read it out, you all know
what it says. It goes a very, very long way and I wonder whether
you had have any advice on how that would stand up to a legal
challenge. An obvious example, it would seem to me, is that a
Member State could not make it impossible to find whether the
local law complied with the basic provision of the Directive and
I do not see how you could oust the jurisdiction to have a legal
consideration of a topic like that. Whether that is a good example
or not, my more general question is, have you had advice that
this is going to stand up to challenge in the ECJ, for example?
(Mr Remnant) We took advice from senior counsel in
the years leading up to the failed Directive last time round and
we even got as far as drafting some suggested implementing legislation
which we either did suggest or were on the point of suggesting
to the DTI at that stage. Certainly, the advice we received was
that Article 4(6) was sufficient to allow various provisions to
be inserted into the implementing legislation in a way that should
help severely to curtail the possibility of litigation. But I
think we could never be absolutely certain that that would be
successful because, once there is a Directive, presumably there
is nothing to stop somebody going off to the European Court of
Justice to say that the Government has not implemented the Directive
correctly or indeed that the Panel has not interpreted the Directive
correctly. I think in the context of a Directive that that sort
of provision is probably as good as one is ever going to get but
it does come back to the point, in terms of the overall worth
of the Directive, that there is nothing in the Directive which
is beneficial to the UK system of regulation. There is only the
potential for dis-benefit through the risk, hopefully remote,
of increased litigation.
Lord Neill of Bladen: The current position with
Datafin is completely brilliant. The court said that you are susceptible
to jurisdiction but it will never really be exercised except ex
post and then by way of declaration as to the future, as to
what some provision in the Code means. Who is going to spend hundreds
of thousands of pounds bringing a suit to benefit another lot
of people years later? It is not how litigation is fought but
it is a brilliant position.
Lord Lester of Herne Hill
54. I should declare an interest because I may
be involved in some Lloyd's litigation but my question is a general
one prompted by my thoughts about that. One good example of legal
uncertainty in this provision would be immunity provisions written
in purporting to immunise the supervisory authority from liability,
let us say for negligence, where the Directive clearly gives an
opt out allowing those clauses to be written in. However, am I
not right in thinking that a challenge might be made not on the
basis of the Directive as such but say Article 6 of the Human
Rights Convention, the right to a court, and the Directive either
being read down or the supervisory authority's immunity under
this opt out being subject to legal challenge. Is that not the
sort of problem which this Directive cannot deal with and the
opt out cannot deal with because it arises under other legal instruments?
Is my question clear?
(Mr Remnant) I understand the question. I was only
hesitating because I am not totally sure of the answer. Certainly
the FSA has immunity from litigation, in so far as it is effective,
and the intention would be to try to mirror that. I think there
are also various provisions in legislation in the UK governing
utility regulation through the Electricity Act, which has similar
sorts of provisions. We have received, hopefully, very good legal
advice that Article 4(6) of the Directiveand the provisions
must be put expressly into the primary legislation rather than
implicitly relying on the Directiveshould go a very long
way towards protecting the system from tactical and other litigation,
but I do not think that anybody could say that it will ever totally
remove the chances of that happening.
Lord Lester of Herne Hill: As you know, the
joint Select Committee of both Houses of Parliament took evidence
on this question on the Financial Services and Markets Bill and
again I have to declare an interest. I seem to remember I was
an advocate on one side of the argument, with Sir Sydney Kentridge
on the other. It seems to me that that whole issue as to whether,
for example, the FSA's immunity or other regulators' immunity
would stand up to challenge before our Lord Chairman if it came
to a judicial committee of this House or in Strasbourg remains
an open question. I do not think there has ever been a clear answer
yet. That is why I raised the question.
Chairman: Gentlemen, thank you very much indeed
for the very helpful way in which you have dealt with our questions
and the time you have given us this evening. We will have to deliberate
on this matter and we will be the better for having had your assistance.
Thank you very much.