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Lord Kingsland moved, as an amendment to Amendment No. 40, Amendment No. 41:
- Line 4, after ("with") insert ("one or more specified rules or notes in").
The noble Lord said: My Lords, in moving this amendment, I should like to speak also to Amendments Nos. 42 and 63 to 65. I have no intention of wearying the House by going over ground already covered in Committee and on Report. The purpose of our amendments is twofold: first, to provide that conforming with the City code as applied by the Takeover Panel is a safe harbour for the purposes of Clause 117(1) of the Bill; secondly, to provide that:
- "Except at the request or with the consent of the Panel, the Authority may not during the course of an offer exercise its powers under the Act in respect of behaviour which it considers may amount to market abuse".
We believe that, without such ring-fencing on the face of the Bill, the authority will, irrespective of its wishes--at this point I should like to draw the Minister's attention to the intervention of my noble friend Lord Forsyth--be compelled, in each and every takeover bid, to stand in the shoes of the panel, and second-guess its every move, in order to meet its market abuse responsibilities under the Bill.
In particular, we do not believe that a mere policy statement by the FSA will furnish the necessary ring-fencing. Any self-denying ordinance by the authority will be susceptible to judicial review in the courts on the grounds both of illegal delegation and illegal fettering. In short, failure to accept our amendments would destroy the panel as we know it, one of the City's greatest assets and a key to so much of its success.
I am pleased to say that, yesterday, the Minister tabled a government amendment seeking to grapple with the first, and only the first, of our two anxieties--that is to say, the provision of a safe harbour. The Minister has explained his amendment to your Lordships. From the point of view of the Opposition, it allays some but not all of our fears. In particular, we could not accept the current drafting of subsection (1) of the proposed new clause. Subsection (1) reads:
- "The Authority may include in a code issued by it under section 115 ... provision to the effect that in its opinion behaviour conforming with the City Code--
- (a) does not amount to market abuse;
- (b) does not amount to market abuse in specified circumstances;
- (c) does not amount to market abuse if engaged in by a specified description of person".
These concerns could be met in one of two ways: either by the addition after the expression "City Code" of the words "as applied by the Takeover Panel"--by that I mean, as applied by the Takeover Panel in any particular set of circumstances--or, alternatively, by excising the words after "behaviour" and inserting the expression which appears in subsection (6) of our Amendment No. 63:
- "behaviour of a person ... which in the opinion of the Panel conforms with the responsibilities imposed on that person by the City Code".
I know that the noble Lord cannot make anything in the nature of a manuscript amendment in your Lordships' House today; but an undertaking that such words would be incorporated in an amendment in another place would be satisfactory to the Opposition.
As regards our other concern, the Minister has directed the attention of your Lordships' House to our Amendments Nos. 64 and 65. Yesterday we tabled Amendment No. 42, which is intended to meet some of the criticisms that the Minister has laid at the door of Amendments Nos. 64 and 65. The effect of the amendment is to establish a jurisdictional boundary between the authority and the panel during the course of a bid.
The amendment would leave the authority completely free to pursue market abuse once the bid had been completed; and therefore would not fetter in any way its ability to take disciplinary action thereafter. The amendment would enable the panel, meanwhile, to get on with the regulation of bids without the parties to a potential takeover having the opportunity tactically to involve the authority and, through that involvement, the courts as well.
Amendment No. 42 comes before Amendment No. 65 in the order of voting. If the Minister is unable to accept Amendment No. 42, I must give him notice that we shall move that amendment. In the meantime, I beg to move Amendment No. 41.
6 p.m.
Lord Newby: My Lords, we are discussing two separate but related issues in this group of amendments; namely, what have been referred to as the "safe harbour" and the "gatekeeper" provisions. I shall deal first with the safe harbour provisions, without reiterating the arguments for including such measures in the Bill. We were pleased that eventually the Government produced Amendment No. 40. It demonstrates a recognition on the part of the Government that a provision in respect of safe harbours was required on the face of the Bill in order to clarify the matter. That has been discussed by many noble Lords at all stages of the Bill.
The remaining key issue, referred to by the noble Lord, Lord Kingsland, and where I share his view that there is a lack of clarity in the amendment as currently drafted, is the question of who shall interpret the City code. The noble Lord's suggestion is to insert a form
of words that makes it absolutely clear that the interpreter of the City code is indeed the Takeover Panel--it is its code--rather than the FSA. That is important and I hope that, when the Minister concludes the debate on this amendment, he will be able to give an assurance to that effect.As regards the other element of this debate, that of the "gatekeeper" argument, in the debate on Report I argued that it represented an undesirable fettering of the role of a principal and primary regulatory body to include such a gatekeeper provision. I remain of that view. The key argument that has been advanced in favour of the gatekeeper provision is that made by the noble Lord, Lord Forsyth, and--most energetically over recent weeks--by the Takeover Panel. The argument states that there will be a high degree of tactical use of judicial review in order to gain a short-term tactical advantage, with no particular anticipation of success as regards the judicial review. If it were ever heard, it would take place only long after the merger had either succeeded or failed.
I have tried to weigh what, on the one hand, seems to me to be the important principle that the FSA should remain unfettered in its powers against the argument, on the other hand, that the whole conduct of mergers will be undermined by the repeated use of judicial review proceedings. Having read the voluminous correspondence that has emanated from all sides of this debate, I still remain unpersuaded of the argument set out in Amendment No. 42. I am not happy with the notion that the FSA will have to sit on its hands until a takeover is concluded and I am not convinced that we shall see the degree of judicial proceedings anticipated and feared by the panel, the noble Lord, Lord Forsyth, and others. For those reasons, we on these Benches shall not support Amendment No. 42.
Lord Donaldson of Lymington: My Lords, I take it that it has been generally agreed that, as a general proposition, in principle the views of the FSA on these matters should prevail over those of the Takeover Panel. However, the exceptional circumstance that gives rise to the problem is when the bid is in progress. Then the City panel necessarily, although not always, may have to take instant decisions. It will of course expect all the parties involved in the bid to comply with those instant decisions rather than acting contrary to them. In that situation, I agree that the courts would follow their ordinary practice, but it is important to outline briefly what happens in a case of judicial review.
An application for leave to apply for judicial review is made. In theory, until it has been dealt with by the courts, an application has no effect whatever. But in a sense that is theoretical. I shall explain why. Turning to a different field, that of local authority actions--an area with which, when I dealt with judicial reviews, I was much concerned--I would have been extremely put out if, having received an application for judicial review, the local authority proceeded to act in a way which made any decision by the court on judicial review entirely nugatory.
However, as a lawyer, I would have to admit that a local authority would be entitled to do exactly that. Of course, if I had learnt that an authority was acting in that way, I would have slapped an injunction on it--but that is another matter. My principal point is simply this: people may not realise that they are able--metaphorically speaking--to raise two fingers to the courts at the stage at which all that has happened is that an application for leave to apply has been made. If the court does not like it, it is for the court to make an order to hold the ring until the application can be dealt with. But people do not think in those terms; perhaps it is a good thing that they do not. The authority of the court is thought to be asserted from the moment someone applies to the court, but that is not the case and that is where the problem lies.
I should have thought that it would be perfectly possible for the FSA, when producing its code in conjunction with the City code, to cope with that situation quite simply. In whatever circumstances, but most likely during a current takeover bid, it could say that, subject to the undoubted right of the City panel to alter the rules as circumstances change during the course of the bid--I am sure that in practice that does happen--the FSA will treat the actions of those concerned as not amounting to market abuse. That would obtain during the course of the bid. However, once the bid had been cleared, the FSA will approach the Takeover Panel and say something along the lines of, "We cannot accept this. You must alter the code".
It is very likely that the Takeover Panel will agree with the FSA, because all parties have the same objectives in mind. However, if the Takeover Panel did not agree, the FSA must have the last word on the matter. The FSA would declare that if in the future anyone complied with that particular aspect of the City code, they would do so at their peril because the FSA regarded that element as being capable of being construed as market abuse.
This situation is akin to the line taken by the courts in Datafin where we would not interfere during the course of the bid--in the sense that we would give no injunctive relief. However, afterwards, we might very well say that we did not think that this was right and if anyone tried it again, we would intervene. I suggest that that is exactly what the FSA should do under government Amendment No. 40. Provisions should be put in place to enable people to use a safe harbour, provided that they are complying with the City code, but without prejudice to the next round, when neither they nor anyone else would be able to do so.
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