Examination of witnesses (Questions 460
THURSDAY 15 APRIL 1999
and LORD LESTER
460. Is it your view that we could draw
a civil remedy alongside the criminal one for market abuse in
this country which would be completely compatible?
(Lord Lester of Herne Hill) I would have to see
the colour of their money first before I could comment. It is
too abstract a question I think for me to be able to answer.
(Lord Hobhouse of Woodborough) The problem is
if you go down the fining route you then have to accept the consequences
of liberty to impose fines. If you accept all those consequences
then you may find at the end of the day you comply with the Convention,
that you treat it as effectively a criminal proceeding although
it does not go before an ordinary court, that it satisfies the
requirements of fairness, protection against self-incrimination
and so on. So you can achieve a result of that kind by redrafting
and you can also achieve the necessary degree of certainty but
you have to decide at the start which route you are going to go
down and then comply with the necessary requirements.
461. Does this problem still apply if you
are not talking about financial fines but the penalties are in
terms of restrictions of membership rights, in terms of suspension
of right to trade in financial products or whatever they might
be? Does that get away from some of these legal problems if we
are not talking about purely financial penalties?
(Lord Lester of Herne Hill) The question is a
very general one. English and Scottish fairness requirements will
apply as much to disqualification, loss of livelihood and loss
of reputation, as they will to fines, so all the requirements
of natural justice, fairness, and all the administrative law requirements
will apply. As I said before, under the Convention as well, because
one is determining someone's civil rights, including the right
to a good reputation and their livelihood, that will also trigger
many of the procedural safeguards in Article 6 of the Convention.
Not all of them, because for example the privilege against self-incrimination
may be looked at differently whether it is criminal or civil,
both under Convention law and under English law. In both cases
the fairness requirements are strong and apply whether it is civil
462. I understand. I am not a lawyer but
to take a specific example, a hypothetical case, fund managers
to be regulated by the FSA pay their membership dues or whatever
and have to be licensed to sell certain products, if an ISA provider
did not live up to the expectations and its clients were aggrieved
by the way it ran its ISA funds or whatever, and as a consequence
the FSA said, "For the next financial year you are not allowed
to be a provider of ISAs", which did not involve any fine
but did involve taking away the livelihood, which only came about
because that financial institution became a member of the club
to carry out that chosen nature of business, does that make it
any easier under the European angle than being penalised by a
heavy fine which tends towards the criminal side, as you are saying?
(Lord Lester of Herne Hill) No. I think what I
am saying is that the detriment is as great whether it is financial
or putting you out of business for a year or more and blighting
your reputation, and the fairness requirements apply with great
force in both situations. But there may be some situations where,
and this is rather technical, because there is a fine and because
it is a deterrent and penal in its consequences, it has to be
classified as criminal and therefore the additional requirements
with regard to the presumption of innocence in particular will
(Lord Hobhouse of Woodborough) If I might add
to that, there is a distinction between the withdrawal of a privilege
and the imposition of a punishment. If you are doing it under
the regulatory scheme and saying that somebody requires to be
licensed you have to justify the regulatory scheme. In other words,
you have to show the need for it and that the regulations which
you introduce are appropriate and reasonable and not disproportionate.
Then if somebody fails to comply with that reasonable scheme then
provided they are subject to a fair procedure which will decide
whether or not they have failed to comply you are not getting
into the ambit of what most people would regard as punishment.
If you start imposing fines then you are potentially in a different
area and for practical purposes in the area that we are talking
about it looks as though you will almost inevitably be in that
area. Just to go back to the market abuse type of situation, if
the regime were to be that you could go to court and get an injunction
against people who were practising market abuse then you would
be in the civil area. If you were saying that we will make it
a tort, rather like under Clause 55 in a better format, then that
again would be civil, or restitution of unfair enrichment, unjust
enrichment. Those would be within a civil scheme but once you
introduce the system of fining, which is punishing, then you have
(Lord Lester of Herne Hill) Could I just add one
thing in addition about the Convention. The Bar Council of England
and Wales has a disciplinary system and a barrister who was disbarred
brought a case in Strasbourg against the United Kingdom on the
basis that the procedures were not sufficiently fair and the procedures
were revised as a result of the Bar thinking more clearly about
Article 6 of the Convention. It is quite a good example of the
way in which Article 6 can require full fairness particularly
in a professional disciplinary context.
463. I find it quite difficult to get my
head around some of this. We have heard from the Minister and
the FSA a mantra which basically says "Of course we are very
concerned to do everything properly and conform with the ECHR"
and they are not sitting, as it were, very far away from you and
you are saying "Excuse me, I think there are a number of
examples of areas in this Bill where I do not think you are going
forward". I assume that there is space here for reasonable
people to disagree but am I right in saying that really what you
are trying to do is to alert us to what you would between you
consider to be some very high probabilities, that it would be
unwise of the Government to proceed without taking seriously into
(Lord Lester of Herne Hill) I am really saying,
first of all, that as this is pre-legislative scrutiny the Government
should, and I am sure if asked would, provide the Joint Committee
with its best view about the impact of the European Human Rights
Convention and British constitutional principles of law to their
scheme. That ought to come now, I think, rather than after the
Bill has been published so that the Committee is well informed
and can make a report based upon it. Secondly, it must be better
for the Bill to be in as perfect a state as possible before it
is introduced rather than after and certainly before it has been
enacted into law. My experience as someone who worked within Government,
not as great as that of you, Lord Chairman, is that the time to
improve legislation is before it is introduced into Parliament
since what happens thereafter is of much less significance.
Chairman: I think
we will have to consider whether we can press the Government to
give their views before we come to make our report but, as you
know, time is extremely short. One other possibility is that we
could try to press them to make their views known after our report
has been published but before the Bill is introduced. We will
have to discuss with them what the best timetable is for that.
I am very grateful for the evidence. I think the Committee has
found this session immensely helpful. In the light of the additional
document we have shown you this afternoon if there is anything
you want to add now or if you would like to let us know at a later
point we would of course be enormously grateful for that too.
We are adopting an approach of trying to find ways in which we
can bring together the evidence that we have had and make suggestions
about how the Bill might be improved. We are not adopting an approach
of just standing back and saying "This is something that
will not work", we are actually looking for solutions to
some of these problems but obviously in the very limited time
we have got there is only so much we can do.
Lord Taverne: I have
one question. We have very thoroughly explored the provisions
about market abuse and I did ask a question about how the Convention
might also affect the provisions in this Bill for the Ombudsman.
I am not aware of any opinion having been put before this Committee
on this also equally important question. Lord Lester mentioned
that there was an Opinion which he had which also seemed to think
this is a very important question. Could we perhaps have that
as well because we may persuade the Government to avoid a dreadful
mistake dealing with market abuse and then find that they have
made an equal howler in the section dealing with the Ombudsman.
(Lord Lester of Herne Hill) I inadvertently referred
to an Opinion of which I have knowledge but it is not my property.
The client has ownership of the Opinion and, therefore, I cannot
say any more about it except that my own opinion is that the Article
6 provisions undoubtedly apply to the Ombudsman and have serious
implications for the way that the Ombudsman system is brought
into existence. That is what is now going to be considered, I
understand, at your next session.
464. It is.
(Lord Lester of Herne Hill) It may be that the
FSA might be able to provide you with their view about the impact
of Article 6 on the Ombudsman.
Chairman: Thank you
both very much, it has been very helpful.