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Lord McIntosh of Haringey: I understand the concern expressed by the noble Lord, Lord Jenkin, and I sympathise. But I do not think that the amendment achieves what he wants.
As the Bill stands, the FSA is able to raise fees to meet expenditure which it incurs in the discharge of its functions and in doing things which are incidental to the performance of those functions. This imposes an important check on the FSA's ability to raise fees, while enabling it to raise fees to cover expenditure which it incurs, for example, in connection with or in consequence of the functions conferred on it under the Bill, but which is not strictly expenditure incurred in the discharge of those functions. If the FSA is to do its job properly, it obviously needs flexibility to expend money on activities which are incidental to its central job of performing the functions conferred on it. In the FSA's case this includes international work, such as the Basle Committee and IOSCO.
The provisions of the Bill as they stand give the FSA that flexibility, and they are no different from the provisions of the Financial Services Act 1986, which was enacted by the previous government. The test imposed is essentially an objective one, which has been shown to work over the years. The amendment would introduce an undesirable element of uncertainty into the question for what purposes fees may be raised. If it is necessary for the FSA to incur expenses in carrying out its functions, that is already covered, since the expenses will be incurred in the carrying out of those functions.
I am not sure what the objective limits are if we move from a test which limits the FSA's ability to raise fees to meet expenses incurred on incidental matters to one which instead confers on it an ability to raise fees to meet expenses incurred in doing things which were desirable for carrying out its functions. What does "desirable" mean? Who is to determine what is desirable? There is an element of subjectivity here which seems inappropriate with regard to a statutory fee-raising power.
Of course, the FSA will have to justify its expenditure. Its annual report will contain a statement of its budget, and that will be subject to scrutiny by Ministers, Parliament and the annual open meeting which the Bill requires it to hold. If the directors of the FSA were to travel everywhere by private jet, if like the EBRD in its early days they were to coat the ceiling of their entrance hall in the finest Carrara marble, that
would inevitably appear in due course and there would be a comeback, a rejection, because it would be evident in the annual report.Although I respect the motives for the amendment, I do not seriously think that it would improve the wording of the Bill.
Baroness O'Cathain: While I agree with the Minister that the word "desirable" probably opens up a problem, the phrase
- "purpose which is necessary for carrying out its functions"
I am sure that the Minister will agree that "incidental purpose" could mean anything whereas,
- "purpose which is necessary ... for carrying out its functions",
Lord McIntosh of Haringey: I am sorry; I do not agree. "Incidental" has worked for 14 years. I am not aware of any complaints since the passage of the Financial Services Act 1986.
Lord Kingsland: I am not as satisfied as I should like to be with the Minister's reply, but I believe that he has indicated some sympathy with the views expressed by my noble friend Lord Jenkin. In view of that, I know that he will be leaving your Lordships' House determined to look very carefully at the amendment which we have tabled to make absolutely sure that he has not got it wrong. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Sharman moved Amendment No. 41:
- Page 222, line 19, after ("Authority") insert ("or any person acting in the capacity of an agent of the Authority under any provision of this Act").
The noble Lord said: These four amendments deal with the issue of statutory immunity. In moving Amendment No. 41, I should like to speak also to Amendment No. 42.
Amendment No. 41 deals with the issue of an agent of the competent authority. As the Bill stands at present,
- "any person who is, or is acting as, a member, officer or member of staff"
- "in damages for anything being done or omitted in the discharge, or purported discharge, of the Authority's functions".
Paragraph 6(1) of Schedule 1 provides that:
- "Those arrangements may provide for functions to be performed on behalf of the Authority by any body or person who, in its opinion, is competent to perform them".
Amendment No. 42 deals with the issue of recklessness. As the Bill stands, the statutory exemption from damages is removed only in the case of bad faith. It seems to me that that exclusion from damages enjoyed by the FSA, the manager and all the other entities covered by it, should be extended beyond just bad faith into reckless behaviour.
Recklessness would need to be proven in any action for damages against the authority or any of its agents and it may well be that the authority would be required to establish whether or not its actions constituted recklessness on the facts as they stand. I beg to move.
Lord Donaldson of Lymington: Perhaps I may say a few words about Amendment No. 42. I raised this question at Second Reading. I strongly support the idea of immunity.
Perhaps I may expand on that. The reason that the courts of law have a statutory and, indeed, common law immunity is that, otherwise, there would be no end to litigation. As soon as a litigant lost his case, he would sue his counsel. When he lost that case, he would sue the solicitor who had advised him in that case; and so it would go on and on.
I believe that a considerable element of the same could be said about the FSA. It will be making judgmental decisions which may be right or wrong, with which people may agree or disagree. But disgruntled regulated or unregulated persons will be able to go to the courts and say that the FSA has been reckless, whether or not they have any justification. There will be considerable expenditure of money and a considerable diversion of management effort and the like on the part of the FSA.
Having lost in the courts, as I have no doubt they would in most cases, they will then, with the assistance of the Government's conditional fee agreement or something--or perhaps that is an irrelevance--go on to the Court of Appeal. Having failed there, they will start on the human rights ladder. The noble Lord, Lord Kingsland, is about to point out that, whereas originally I sensibly opposed the Human Rights Bill, when it came around again I supported it, but only because I believed it was the only way of controlling the press. But that is beside the point.
With regard to this point, I believe that the FSA needs immunity. The courts, of course, have immunity. Nevertheless, apart from what happens in court, if one's case is not listed or is listed wrongly or anything like that, that is a judicial function, even if it is a delegated function. Therefore, it is covered by the immunity. If one goes to the Lord Chancellor's Department, it will, in suitable cases, pay compensation. The same approach should be adopted by the FSA.
Lord Bagri: The question of immunity has been examined at length by the Joint Committee under the noble Lord, Lord Burns. It made some valuable
suggestions which have been incorporated into the Bill, so far as I can read it. It is important for the good of the financial services industry, as well as for good regulation, that regulators are not deterred from taking regulatory action by the mere risk of ending up with all kinds of challenges in court. The balance in the Bill is right. It is correctly drawn.
Lord Phillips of Sudbury: Far be it from me to presume to question the opinion recently expressed by the noble and learned Lord, Lord Donaldson--
Lord Donaldson of Lymington: No one else refrains from disagreeing with me!
Lord Phillips of Sudbury: --but I believe it is fair to say that the immunity which he described is an immunity in terms of the trial process and not in terms of work which may be carried out by barristers in the privacy of their chambers. That is an important distinction, because most of the work that will be carried out by the new authority will, of course, not be in a tribunal--so to speak--but will be carried out in the course of a normal working day, applying the vast regulatory framework with which it is endowed under the Bill.
On these Benches, we are absolutely at one with the Government in wanting to create a forceful regulatory body which can carry out an extremely difficult task in an extremely naughty world. There is no question but that the powers given are commensurate with the power of some of the financial bodies and agencies which operate in the global financial market. Having said that, we return to the question of balance and public confidence. It would not be in the long-term interests of the authority and its staff to have the extent of the immunity granted by the Bill as it now stands because, as I suspect all of us--certainly the lawyers among us--know only too well, proving bad faith is an extremely difficult test to establish. We are well aware also of the current extremely ineffectual provisions in the City which do not do their job satisfactorily.
I suggest that the addition of those words will not open the floodgates to a vast amount of speculative legal action. If one considers the purview of the old Monopolies and Mergers Commission, which had no immunity whatever--it was open to the full extent of the common law--I am not aware that it was the subject of much, if any, litigation. I believe that by adding those words we are widening in a sensible way the prospect of commencing and succeeding in an action against the authority.
During the supper break I looked up the definition of "recklessness" in Halsbury's Law. Definitions vary according to the context in which they arise. Broadly, recklessness is acting in a manner,
- "which creates an obvious and serious risk"
I am sure that Members of the Committee know that bad faith is dishonesty. As I said, that is extremely difficult to establish, particularly within a bureaucracy. I suggest, therefore, that the amendment proposed, far from weakening the Bill, will strengthen it. It will give the financial community a good deal of reassurance.
9.30 p.m.
Lord Grabiner: The thrust of the proposed amendments is that although the claimant can sue for damages if he is the victim of bad faith behaviour and infringements of the Human Rights Act, and although in addition he is free to sue for judicial review, those remedies are insufficient. It is said that claimants should, in addition, be allowed to sue variously for negligence and recklessness, and that on that footing the FSA and its officers and staff should not be immune from liability. I respectfully agree with the observations of the noble and learned Lord, Lord Donaldson, and the noble Lord, Lord Bagri. Perhaps I may refer to the points and develop them briefly.
First, if the matters complained of by an individual complainant reveal conduct that is so unreasonable to the extent that no reasonable regulator could have acted in such a way, that is behaviour which will, by definition, be caught by the judicial review principles which are now well established and, indeed, for which many government Ministers over the years have had to pay, to the greater or more efficient performance of their statutory and other responsibilities.
There will, therefore, be a remedy which will be sufficient to ensure that the FSA will behave itself. If in the exceedingly improbable event that the FSA finds itself confronted with numerous successful applications for judicial review, it will be obvious that something has gone fundamentally wrong. I believe that the existence of a remedy of judicial review will be a sufficient control over the improbability of that sort of behaviour developing.
My second point particularly supports the observations of the noble and learned Lord, Lord Donaldson. In my view we would do a great public disservice if we agreed an amendment which turned this legislation into a paradise for lawyers. Contrary to popular belief among some lawyers, it is not the function of legislation to satisfy the hunger of lawyers. It is tolerably clear what is meant by "bad faith". It is also clear what is meant by "judicial review" and the circumstances when judicial review arises.
The problem is that once the concept of negligence is introduced into legislation of this kind, it will be--I speak from bitter experience--impossible to restrain clients who are told that they can simply complain about unreasonable behaviour as a basis for starting litigation against the FSA. There would be no end to litigation and much of that litigation would be nothing short of nonsense.
I turn to "recklessness". In my view, if that word was to be introduced, it would inevitably lead to endless litigation. In English law, notwithstanding whatever the noble Lord may have discovered in the dictionary, this is an exceedingly elusive concept.
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