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Baroness Hollis of Heigham: As your Lordships have said, Amendment No. 27 would remove the regulator's exemption from liability in damages. Without this protection, the regulator would be liable in damages for the actions, or failures to act, of its staff. It is not just sins of commission but sins of omission as well. When one thinks of the number of schemes that go down and some of the current rows about regulating regimes, one can see the implications of the provision.

The effect of this would be to prevent the regulator achieving its objectives, in particular protecting members' benefits. I can understand that this exemption may raise eyebrows, as it has today, but perhaps I can suggest why it is necessary.

Say, for example, that the regulator receives information from a scheme auditor that a particular trustee is about to remove scheme funds for his own purpose. The regulator, if it reasonably believes that to be the case, should act, via the special procedure, to appoint a trustee with exclusive powers, to take control of the scheme's bank account and ensure funds cannot be removed. However, if the regulator were liable for damages it would have to consider before acting the consequences and cost of being wrong—the cost of defending potential actions by trustees of the scheme, the employer and any members affected, and of course any damages award.

One might think that there is therefore a disproportion between the injury done and the amount of risk that might go by the board if one did not have this protection. Ultimately, the costs of all of those damages and action would fall on all members of pension schemes. That would prevent the regulator from acting in the majority of cases—just about any case—unless the evidence is 100 per cent certain and he feels that there is therefore no risk of liability to damages.

Your Lordships will have noted that, over the page in sub-paragraph (5), there is provision for damages where the regulator has acted in bad faith. Damages
 
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are, of course, also available when the regulator has acted, or failed to act, in contravention of the Human Rights Act 1998. I was told not to believe in precedent, but that is the situation for OPRA. My understanding is that it is also the position for the FSA and its members. It therefore seems appropriate.

From my experience, if there are issues of liability in any sense that involve an intervention, improvement notice, freezing order or other preventive action in which one may be liable for damages, I think it is possible to return to a situation where there are few options between doing nothing or having such certitude that one winds up the scheme and goes for the full nuclear option.

Throughout the Bill we have provided an array of graduated steps of intervention, with powers attached, in order to prevent the worst case scenario—that of a scheme failing and calling on the Pension Protection Fund because the promise cannot be delivered. Provided that the regulator acts in good faith, is acting reasonably on the information he has been given and is not contradicting human rights legislation, it is right that he is given this degree of protection in the same way as it is given to OPRA, the FSA and similar financial supervisory bodies.

Lord Oakeshott of Seagrove Bay: I understand the term "in bad faith", but who will decide whether the regulator reasonably believes it to be the case—which I think were the words just used by the Minister?

Baroness Hollis of Heigham: Obviously there is a full appeals procedure in place as regards the decisions taken by the regulator—the tribunal through to the ombudsman and so forth. That is available to individuals if there is a view that someone has acted unreasonably. That remedy is always available.

I am assured that the exemption we have provided is narrower than that currently given to OPRA by Section 1(4) of the Pensions Act 1995, in that it would not apply to acts or omissions committed in bad faith; that is, it would not prevent an award of damages under the Human Rights Act 1998.

All I would say is that, over and beyond the bad faith and the human rights points, there are rights of appeal against the judgment of the regulator if that judgment is ill founded in fact and in law. Surely that is where we would want to be.

Lord Oakeshott of Seagrove Bay: No one would argue that there should not be some protections. In a sense, the noble Baroness was arguing against the principle of having no protection, but there must be some. However, the issue that we are trying to probe is whether the protections need to be quite as whitewashing and draconian as this. We have talked about the conditions under "bad faith", but are there other conditions in which the exemptions should not be quite so sweeping?

Baroness Hollis of Heigham: I understand that this is a significant issue and I shall be happy to follow up
 
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my response in more detail in a letter. On that basis, it may be that noble Lords can then decide whether they wish to revisit the matter on Report.

Baroness Turner of Camden: Without this kind of protection, it might be difficult to persuade people to come forward to take on these jobs.

Baroness Hollis of Heigham: Following the point made by my noble friend, noble Lords will understand that some of these concerns read across to other areas about the form and degree of regulatory practice and the resultant exposure of members of such bodies to criticism, judicial review and the like.

Lord Lucas: One understands that people are reluctant to put themselves at risk. Later in the Bill shareholders will be exposed to just that kind of risk, because we are breaking limited liability in a way which may put them at great risk if a pension fund in a company in which they have invested goes wrong. We have to be even-handed and understand that these motivations work on everyone, not only on regulators.

Lord Higgins: I should like to say a word before the noble Baroness responds, otherwise we shall become rather too conversational.

As the noble Baroness has said, this is drawn very widely indeed because otherwise it may be difficult to persuade people to do the job or join the staff of the regulator. We have to balance all that. However, it may be that a person or organisation suffers damage, only to find that they have no form of redress whatsoever. Even where there is no question of bad faith, they none the less would have suffered damage. The question here is about to what extent the balance is right in ensuring that, however bad the damage may be—such as on disclosure of information, wrongly or otherwise, which may amount to tens of millions of pounds—the appropriate redress and the limits of the matter are agreed.

In effect, the cost is carried by the person who is damaged, or the regulator and those paying the levy or, possibly—my old Treasury hackles rise when saying this—the taxpayer, or I suppose that it could be insured. I am not sure to what extent that might be possible. In any event, we need to look at this sub-paragraph again. The general opinion of the Grand Committee is that this provision is very broad.

Baroness Hollis of Heigham: Before the noble Lord decides what to do with his amendment—given the conventions of the Grand Committee, he should withdraw it—perhaps I may say a few more words. We all accept the point about bad faith and understand that the remedy of judicial review is available if the actions taken were inappropriate. However, I am puzzled by the notion of the basis on which we think the regulator will intervene. He would intervene on the basis of a scheme return which has raised concerns about the level of underfunding and the capacity of the pension scheme to meet its pension promise. The regulator would then proceed on that basis, in
 
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conjunction with Standard & Poor's risk assessments and so forth, to produce—we hope in consultation with the trustees—a remediation strategy. Only if that fails, or if it is impossible by virtue of the issues to be raised in Clauses 35 onwards that the company is unwilling to make good, would we then be drawn into a much more adversarial situation.

At what point in that process would one regard the regulator as being liable for damages for acting in the way laid down by law, even if ultimately he is able to reach agreement with the company and the trustees to make good the funding of the pension scheme? Is it a slur on the character of the trustees that the regulator has asked them to remedy the situation? Yes, I suppose it is, but then so they should. The fact that the trustees are carrying an underfunded pension scheme is a perfectly proper piece of public information based on the scheme return.

I am finding it quite hard to conceive of the circumstances in which one would regard the proper activity of the regulator, which may rightly be critical of the company or the trustees, as inappropriate. Only if the criticisms were not well founded in fact, based on the scheme returns, could an issue of damages payable due to the unjustified imputation of reputation be justified. As I say, I have difficulty in envisaging the scenario.

I imagine that the noble Lord will want to come back to this on Report. At that point perhaps he will describe for us the situation in which he thinks that there should be some constraint on the regulator acting for fear that if he did, a claim for damages might be pursued on other members of the body. The amendment would serve to limit the capacity of the regulator to act. Do we wish to see that, and in what circumstances would the noble Lord want it to happen? If the noble Lord can help me on this point, we may be able to take the argument further on Report. However, I repeat that I am perfectly happy to write on the legal and technical details of this point.

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