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Lord Lipsey: My Lords, perhaps I may tell a stylised version of what is essentially a true story. I arrive at my home in Wales one Friday afternoon and receive a call from a person at the Financial Services Authority who says, "We need a director of the PIA. Messrs Cheat'em & Ripoff seem to have gone bust. They are flogging pensions policies like mad in an attempt to get out of a hole but we think that the cheques may go anywhere. We require permission and your support for an intervention order against them to stop them doing business this minute". One asks questions.

Suppose I was proceeding in precisely that position under the Bill. I have no difficulty in acting in good faith. I take the best judgment I can with the facts in front of me. However, speaking as a layman and not as an expert on the jurisprudence of the word "reckless", I have great difficulty in not behaving recklessly. I cannot check all the facts in front of me. If I act, the company concerned might go under. If one stops it from trading, one has to write to its investors. The company concerned might be destroyed by the simple action of intervention. If I do not act, the investors may be ripped off. If I simply decline to take a decision, either one of those two things might happen. In that situation, it is hard not to behave in a way that would seem to be "reckless".

It might be argued that if I understood the law properly, in that position I would be protected and I should not worry too much. That might be right. However, what I would actually do is not pick up the phone on arrival in Wales. One would have a very difficult decision to take. In this case it would be taken as a layperson, as a member of the authority, without full information being available. That is why I believe that good faith is sufficient protection in this case. Indeed, it would wreck or be in danger of spoiling the

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practical effectiveness of the authority if we were to go further in the way suggested by the noble Lord, Lord Kingsland.

Lord Elton: My Lords, if ever I see the noble Lord, Lord Lipsey, coming towards me in a car, I shall run for cover. It is clear that he can never be sure of not driving recklessly. It seems that he strains the meaning of language in saying that such dangers exist. I do not doubt that if they did exist they would be resolved in the first case to be brought under the Bill.

Speaking also as a layman, if the public was to hear that the Government wish to shelter the authority from behaving recklessly and thereby cause large numbers of people to lose large amounts of money and possibly their living, it would be deeply alarmed. Those who are not laymen would be similarly alarmed as practitioners, finding that they would be exposed to the reckless or careless use of enormous powers. I believe the amendment has great merit.

Lord Goldsmith : My Lords, in the explanation of the amendment given by the noble Lord, Lord Kingsland, I understood him to accept now, at Report Stage, and in my opinion rightly so, that it is appropriate that the authority should have immunity for acts caused by its own negligence. I hope I have correctly understood his words. That is an important statement. It is a recognition that where the authority acts carelessly in doing something which it should have recognised would cause harm and which does cause harm, still it should have immunity.

I believe that is absolutely right, for the reasons which were fully explained and explored in Committee. This amendment does not avoid that problem because the word "reckless" is being used, or sought to be used here, in a civil liability context when its more natural and appropriate place is in relation to criminal responsibility. That is an important distinction.

I was not able to check all the references to clauses in the Bill given by the noble Lord, Lord Kingsland. Those I was able to catch in which the word "reckless" is used appear to me to be cases which relate to criminal responsibility or, if not exactly criminal, to misconduct for which penalties are to be imposed.

In the context of criminal responsibility, recklessness makes sense for this reason. I should like to read a statement, which is rather long, as to the meaning of "recklessness" in the criminal context, for two reasons. I take it from Archbold, the leading textbook on criminal practice and procedure. It is a quotation from Lord Diplock. He stated:

    "Recklessness on the part of a doer of an act presupposes that there is something in the circumstances that would have drawn the attention of an ordinary prudent"--

a subsequent case added "and sober"--

    "individual to the possibility that his act was capable of causing the kind of serious harmful consequences that the section that created the offence was intended to prevent, and that the risk of those harmful consequences occurring was not so slight that an ordinary prudent individual would feel justified in treating them as negligible. It is only when this is so that the doer of the act is

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    acting 'recklessly' if, before doing the act, he either fails to give any thought to the possibility of there being any such risk or, having recognised that there was such a risk, he nevertheless goes on to do it".

Two points can be made about that. It is a difficult definition. I recall one senior circuit judge saying that when he read that to a jury, he said, "Make of that what you will; I don't know what it means". However, I suggest there is a more serious point for present purposes for your Lordships' House. The final words are,

    "or having recognised that there was such a risk, he nevertheless goes on to do it".

Driving at speed down the road, or perhaps throwing a cricket ball into the air close to a greenhouse, is apt to prompt the question, in criminal responsibility, "Did you recognise there was a risk but nevertheless went on to do it?" But in every case in which the authority acts in a way which ultimately causes damage to a regulated person, I anticipate that if the authority was to act to suspend, stop business or take any other action it wants, it would recognise that that might cause damage to the person concerned. Therefore, in every single case, if one applied this wholly inappropriate concept to civil liability, somebody would be able to argue that the authority had been reckless. Is not that the point that was made rightly and strongly in Committee by the noble and learned Lord, Lord Donaldson, as well as by the noble Lord, Lord Grabiner? They said then that in cases where a regulated person found that the authority was acting in a way that was causing him damage, he would run to his lawyers.

The noble Lord, Lord Kingsland, says it is a matter of last resort. It may be last resort if one sees one's business going down the drain. But that definition would give rise to the risks that the negligence amendment would have given rise to which the noble Lord, Lord Kingsland, rightly now does not press.

I suggest, therefore, that this amendment does not solve any problem. It leaves all the issues of difficulty of interpretation and of many litigation cases being brought still standing. It is quite different from bad faith. Bad faith is dishonesty; one can easily put that on one side of the line. Recklessness, in this context, means some sort of negligence and would give rise to all the difficulties to which attention has been drawn. I hope therefore that the noble Lord will reflect on that and not press the amendment.

6 p.m.

Lord Boardman: My Lords, I support the amendment. The noble Lord, Lord Goldsmith, seemed to be confusing the definition of "recklessness" in a criminal context and in the context of this Bill.

The case we are considering here is of someone who acts in a reckless manner with the result that a perfectly innocent company, firm or person suffers massive loss. We are not talking of criminal recklessness. It may or may not be criminal. But in this case we are talking of someone who just does not care whether he is right or wrong; he makes a decision and to hell with what

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happens to the loser. And the loser may well be one of those whom, when we are drafting this Bill, we must safeguard as far as possible.

The noble Lord referred to "negligence". But negligence is not a necessary aspect of recklessness. It may be a part of it and can be a contributing factor to it, but recklessness in the sense that is meant in the amendment means that the person who makes the decision does not know and does not care whether he is doing right or wrong and the person being adjudicated upon must suffer. Bad faith is when the person knows he is doing wrong. I support the amendment.

Lord Fraser of Carmyllie: My Lords, the noble Lord, Lord Goldsmith, advanced a lucid argument that the concept of "recklessness" should be restricted to the criminal law, and he has a body of law on his side. However, as we are dealing with the Financial Services and Markets Bill it would seem to be appropriate to examine that word in the context of this Bill.

From Second Reading onwards we have been repeatedly told that the idea of market abuse as it is set out in this Bill, particularly in Clause 115, is civil and not criminal. That has been said repeatedly by the Minister on the Front Bench. Some of us may have doubts as to whether that position can be maintained in all circumstances, but nevertheless that is the Government's position.

But if there is to be a finding of market abuse against an individual, then the authority, logically, has to determine how much of a penalty should be imposed on that individual. If we go to Clause 122, one of the matters that the authority must have in mind in determining what the penalty must be must include having regard to the extent to which that behaviour was deliberate or reckless. In those circumstances, whether the noble Lord, Lord Goldsmith, likes it or not, the fact is that in this Bill, in what is said to be a civil context, the concept of recklessness has been introduced.

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