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Lord Bagri: There is already a provision for judicial review. Perhaps Members of the Committee can imagine themselves in a regulatory body that lost two or three judicial reviews in a row: no one would have any confidence in you, no one would trade in your market and, indeed, no one would believe you. I believe that there is an automatic remedy in this respect. If we go in for subjective judgment about recklessness or negligence, it will open up a Pandora's box.
Lord Kingsland: In view of what many noble Lords have said about these amendments--three out of four of which are tabled in my name--I feel that I ought to be making my contribution from the Opposition Front Bench under an assumed name, or at least wearing a false beard.
I should like to start by saying how profoundly I disagree with the contribution of the noble Lord, Lord Burns. He has made such a distinguished contribution to everything connected with this Bill that I find this very hard to say. All my amendments ask the FSA to do is to behave reasonably. The noble Lord said that, if the FSA was saddled with the obligations set out in these amendments, it would be immobilised. However, doctors are not immobilised just because they face an action for negligence if they commit a mistake in an act of surgery. Soldiers are not immobilised because they know that if they pull the trigger and get it wrong they may be tried for murder. Policemen are not immobilised when they rush to make an arrest. Those three professions face big liabilities if they get it wrong.
The FSA has months to plan what it is going to do--months to consider each step that it takes. Why should it have immunity in circumstances where those other bodies do not? I quite understand the concern of the noble Lord, Lord Burns, and that of the noble and learned Lord, Lord Donaldson, about endless
litigation. But what about the regulated party who has been negligently or recklessly ruined by a decision of the FSA? What recourse does he have--particularly when one looks at the wholly inadequate provisions of the investigator? I think, with great respect, that there is a different context in which these amendments ought to be looked at. I hope that I may take the Committee through the three amendments.
Lord Burns: I did not go into the issue of the complaints procedure and looking at this from the side of the party that was regulated. My comments concerned depositors and the people who carry out business with the financial institutions and the relationship they have with them. If, at any stage, anything were to go wrong with one of the financial institutions that was being regulated, there would immediately be a great outcry on the part of everyone who had lost money. They would try to use these provisions to recover their money, possibly even where they had taken a risk which they should have taken into account but which they would subsequently try to lay off on the regulator. That was the burden of my remarks. I was not so much considering the matter from the point of view of the regulated firm--which, I have argued in the past, should be dealt with by the complaints procedure--but rather from the point of view of depositors. An awful lot of depositors become evident when a financial institution gets into difficulty.
Lord Kingsland: I thank the noble Lord, Lord Burns, for that clarification which raises a series of issues which I believe will be dealt with later in the Bill. My amendments focus on the position of the regulated party.
These amendments amount to three changes to paragraph 19(3) of Part IV of Schedule 1 to the Bill. The first seeks to introduce the concept of recklessness into paragraph 19(3)(a), which is, at the moment, limited to bad faith. The second seeks to add acts or omissions in breach of European Community law to paragraph 19(3)(b). The third seeks to include the provision where, in the case of the authority but not its employees, acts or omissions are shown to have been negligent.
I shall discuss the amendments in turn. In paragraph 19(3)(a) it is clear that the authority is not exempt from liability for damages if it acts in bad faith. There is some uncertainty about what the term "bad faith" means. Some have argued that bad faith here ought to be defined in the way that it is in administrative law; that is to say, someone who acts wholly unreasonably, or takes into account issues that he ought not to have taken into account, or in some other way contravenes the rules of fairness which exist in judicial review. I suspect that that is not the sense in which the courts would interpret bad faith in this context.
It seems to me that they are most likely to interpret bad faith along the lines of the tort of malfeasance in public office. As many Members of the Committee are aware, there is at present some uncertainty about the scope of that tort. But on one interpretation that tort
could include reckless behaviour if by reckless behaviour is meant not caring whether or not some consequence flows from an act. Recklessness may therefore already be contained in the concept of bad faith. But in any event, in my submission there ought not to be immunity from recklessness. If the authority acts, not caring what the consequences are, I believe that that is grossly wrong and so irresponsible of an official that the authority for whom he works ought not to be protected.Then we come to the question of the scope of the Human Rights Act. Again, I know that a number of noble and noble and learned Lords will be all too well aware of the recent case of Osman in the Strasbourg court, reversing an important decision in our courts in the case of Hill v. Chief Constable of West Yorkshire, which essentially stated that police engaged in the activities of investigating and controlling crime are not immune from actions of negligence, or, at least, that any attempt to make them immune from actions of negligence is in breach of Article 6(1) of the human rights convention.
We do not know how that decision will play in our own courts because, under the Human Rights Act, our courts are obliged only to have regard to the jurisprudence of the court in Strasbourg. They are not bound by it. I am not saying that the consequence of what is already in the Act will, in effect, make decisions by the FSA, which are negligently made, liable for actions for damages. I am saying that the scope of that provision--heading (b) of paragraph 19(3) of the schedule--is now really quite uncertain and may in fact mean that the FSA is liable for negligence.
The third part of the amendment, I say with great respect to the Minister, is surely one that he can accept. If acts or omissions are in breach of European Community law, in circumstances where European Community law under the doctrine of a case like Francovich requires damages to be paid, the FSA will have to pay damages. There can be no question one way or the other. I put it to the Minister that that is something that should, irrespective of value judgments he might reach regarding recklessness or negligence, be fairly and squarely in the Bill.
The noble Lord, Lord Grabiner, who, like the noble Lord, Lord Goldsmith, is a lion at the commercial Bar and is very familiar with the application of judicial review to commercial matters, pointed out that judicial review is available as a remedy. He is quite right about that. As he well knows, for the particular remedies that are specific to judicial review itself, you cannot get damages. You can get an injunction--although I suspect that the remedy of an injunction will not be much use to a regulated authority because, by the time it wakes up to what has happened to it, the damage will have already been done by the authority. But damages are not open to it unless it has an independent, self-standing remedy deriving from another part of English law. With great respect to the noble Lord, Lord Grabiner, he might think that judicial review helps him. However, I am not sure that it does help me in trying to achieve what I am seeking to achieve.
In sum, I would feel less evangelical about these amendments if the Minister could find his way, between now and Report stage, substantially to reinforce the role of the independent investigator. Although of course it is important that the Minister takes into account the interests of the FSA in being able to take decisions that are final, it is very important that the Minister also takes into account the interests of those who are regulated. After all, they are the individuals who have made the City of London the enormous success it is today. They need certainty and they need to be treated decently, just as much as the FSA requires them to behave decently. In my submission, the Bill does not get this balance right. Either the balance has to be right in the area we are debating now; or the Minister has to go back to the earlier part of the debate we had today and reconsider what he said regarding the complaints investigator.
10 p.m.
Lord McIntosh of Haringey: I am very well aware of the importance that noble Lords opposite attach to these amendments. There have been ferocious articles in the press in the past few days inspired, or written, by the noble Lord, Lord Saatchi, which have made it clear that statutory immunity is one of the principal areas in which they think the Bill is defective. I do not deny the importance of this issue. It is a topic which was considered in detail by the Joint Committee, which broadly approved the level of immunity proposed by the Bill, subject to certain proposals to strengthen the complaints arrangements, which we have broadly followed.
Statutory immunity is not new. We are not introducing it for the first time. The Financial Services Act 1986 provided for it; the Banking Act provided for it; and the Companies Act 1989 provided for it in relation to the regulation of company auditors. The Pensions Act 1995 gives the Occupational Pensions Regulatory Authority the same statutory immunity as the FSA will have under the Bill. Indeed, the Opposition, as the Conservative government, were instrumental in introducing the immunity into the existing legislation. The immunity was supported not only by the noble and learned Lord, Lord Donaldson, but also by the late Lord Denning, among many other distinguished lawyers. The immunity which is enacted here is limited. It does not prevent action for damages where the FSA has acted in bad faith. Developments since the Financial Services Act, the Banking Act, and the Pensions Act will serve to narrow the extent of the FSA's immunity.
Under the Human Rights Act, actions for damages are permitted in respect of an act or omission unlawful under Section 6(1) of that Act. I have signed a statement saying that the Bill is compatible with the European Convention on Human Rights. Conformity with the Human Rights Act is specified in paragraph 19(3)(b) of Schedule 1. The amendment on that point is simply not necessary.
In addition, of course, the FSA will not be immune from judicial review. It is essential that we have a structure which allows the FSA to get on with its work
efficiently and effectively. A strong but accountable regulator is in the interests of the industry and consumers alike. I simply do not recognise the description which has been given in the press by the noble Lord, Lord Saatchi, and journalists, of this monster which is a succubus on the financial services community. I think that I have used the word "succubus" wrongly.
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