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Clause 39 makes provision to ensure that transfers of foreign property are recognised as effective to the greatest possible extent, where this is not the case simply by virtue of the property transfer instrument. I understand the nature of the amendment and the concerns that the noble Baroness expressed in arguing for it. However, it provides that the Bank of England must ensure that a transferee is not adversely affected

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if a transfer of foreign property is not effective. I, of course, agree with her that steps must be taken to ensure that the transfer of foreign property is effective in all cases where we can achieve that. However, she was absolutely right to indicate that I might have reservations to exposing the Bank of England to the liability of ensuring that no transferee suffers any disadvantage in such circumstances. The liability that this would impose is likely to be uncertain and may be unquantifiable in any given case. Such uncertainty would give rise to complex and costly litigation.

Of course, the Bank will take all practicable steps to ensure that a transfer of foreign property is effective. Clause 39 goes a long way to ensuring that. It provides that an obligation may be imposed on the transferor to take steps to ensure the effectiveness of the transfer under a foreign legal regime.

These obligations are enforceable as if created by contract between the transferor and the transferee. Because the obligation is enforceable as a contract, any person who is unwilling to comply with it must consider whether the transferee would be able to bring a claim for substantial damages should non-compliance prejudice the resolution and give rise to economic loss. Other contractual remedies would also be potentially available to compel compliance with the obligation, such as an interim injunction and an order for specific performance. These incentives enhance the likelihood of a successful operation.

It is the Government’s view that Clause 39 strikes the right balance, so I hope the noble Baroness feels able to withdraw her amendment. I recognise that some of her amendments have been probing. She has indicated that this is a very difficult area, and we have certainly given substantial consideration to the clause and why it is drafted as it is. She will appreciate that the Government cannot accept an amendment that would put the Bank into a very difficult position of potentially unquantifiable liabilities, which might involve very substantial costs.

Given that uncertainty, I ask the noble Baroness to realise that the Government have not been at all blasé about this issue—very far from it. We recognise how difficult this is with regard to foreign property, and we have worked hard regarding this clause; but we could not have the provision diluted to the extent that her amendment would undoubtedly achieve, with deleterious effects on the operation. That is why I ask her to consider withdrawing her amendment.

Baroness Noakes: The Minister does not surprise me with his response. Can I probe what he is saying? Is he saying that if a transferee is stupid enough to get involved in a property transfer instrument in relation to foreign property, he knows that he will do so entirely at his own risk and that there would be no effective remedy that he could pursue?

Lord Davies of Oldham: That is part of the position. I have no doubt that the noble Baroness could give an example of where the party concerned was in difficulty, having entered an agreement without fully understanding the potential circumstances. After all, we are talking about situations in which there has been a substantial

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institutional failure and the authorities have been obliged to act. A range of individuals involved with that institution could have relationships with regard to foreign property that they entered in good faith, and they wonder why they should bear the loss.

Of course I understand the anxiety on that score. That is why Clause 39 is a significant attempt to ensure the most effective representation on the matter that the authorities can manage. However, we are not prepared to accept that the Bank of England would be the final resort on which liability could rest. That would be putting the Bank in an extremely invidious position, particularly in circumstances whereby, as the noble Baroness suggested, someone had entered into an agreement without thinking things through and had acted stupidly. What is certain is that someone who had got themselves into that position had taken a commercial risk. I am afraid that the Government’s position is that if there is an element of risk in the position, there is also a possibility of liability attendant upon that position. It is not for the Bank of England to meet that liability in such circumstances. That is why I am unable to accept the amendment.

Baroness Noakes: Perhaps I may pursue this a little further. The Bank of England is effectively acting as a vendor in selling things on. The fact that they have come from a failed bank does not mean that what is being transferred on is a bad asset or collection of assets. If this were a commercial transaction, there would be various provisions in the contract that could include warranties and indemnities, money held back or guarantees. There would be some way of protecting the transferee against recognised uncertainty. If what the Minister is saying is correct, no transferee would want to get involved in any transaction where there was a scintilla of doubt about the ability to complete the transaction, possibly because of the impact of local foreign requirements.

I am struggling to understand why the Government are being so dogmatic, or are they effectively saying that they will be unable to get rid of any foreign assets which could, in fact, represent value when taking over a failed institution with an overseas business? Are the Government saying that absolutely nothing could be done and that foreign property is completely at risk? If that is the case, people will be advised by their lawyers not to take part in such a transaction.

Lord Davies of Oldham: That would be a misinterpretation of the Government’s position. If I have misled the noble Baroness, I must correct myself as rapidly as possible. The whole point about Clause 38, and Clause 35 which permits the transfer of foreign property, is that of course we recognise that we must create the strongest possible position for the effective transfer of foreign assets. We would expect that a very substantial number of foreign regimes would recognise such legal rights and that the issue would be the realisation of the value of those rights for the individual and the Bank acting in this capacity. However, when all those instruments were in place and those efforts were made, it may remain the case that loss was involved. It may be impossible to enforce the right with regard to foreign property, because the legal

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entity may not be prepared to recognise that obligation and the matter could not be pursued in those terms.

The Government’s position is not one of neglect—it is the opposite. The position is to pursue every strategy as far as the Bank is concerned to ensure that it realises assets. However, when it is unsuccessful in those circumstances—and we have to expect that it may not be successful in every case—the risk must be borne not by the bank but by the transferee.

I have a very extensive note on this matter. If, on the arguments that I have set out thus far, the noble Baroness feels that she is not able to withdraw her amendment, my extended note would refine the issue somewhat but I am not sure that it would move us very far with regard to the substance. However, if she is still dissatisfied with my answer, I will prolong the discussion and do my very best to persuade her. Having said that, I hope that she is content with the points that I have made and I ask her to withdraw her amendment.

Baroness Noakes: The Minister said that Clause 39 sets out everything that could possibly be done, but it does not replicate what happens in ordinary commercial transactions. I am content to withdraw the amendment but the Minister has to understand that effectively the Government will be left on the record as saying that risks in transfers involving foreign property will lie completely with transferees without any possibility of recourse. Clause 39 is just about making lots of efforts—that is all it does. Once the efforts have been made and they do not work, it is down to the transferee. If the Government want that left on the record for all to see, I am entirely happy with that, but I just say to them that, where foreign property is involved, those using these powers will be in for a very hard time with any lawyer on the other end.

Lord Davies of Oldham: I concluded my last remark by suggesting that the noble Baroness might find the position acceptable. However, what I do not find acceptable is her interpretation of where we are at this stage in relation to foreign property, and therefore I shall have to clarify the issue further.

The provisions of the Bill seek to ensure that transfers of foreign property are recognised wherever possible. We also hope that foreign legal regimes will recognise the actions taken under the special resolution procedures and in view of the public interest pursued by the tripartite authorities. The precise position will be governed by international law. The Bill’s powers work in conjunction with each other as follows.

First, as I set out earlier, Clause 35 permits the transfer of foreign property. As such, transfers will be authorised by Act of Parliament. The transfer will be valid and effective as a matter of domestic law, and the only exception will be if the transfer is prohibited by Community law. Clause 39 then seeks to ensure that transfers of foreign property are recognised as effective under foreign law, even where that is not the case by virtue of the property transfer instrument. This is important because, if the transfer is valid under domestic law but not recognised under the foreign law regime which provides the relevant governing law, the transfer may be practically unenforceable. That is bound to be the logical position. In particular, Clause 39 imposes a duty on the transferor and transferee to take the

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necessary steps to ensure that the transfer is effective. That may include, for example, effecting a registration in the foreign legal jurisdiction where that is necessary to pass ownership in the jurisdiction and seeking to arrange a contract to change a reference to the transferor to a reference to the transferee. The precise position will then depend on what actions are taken in pursuance of this duty. We recognise that there may be some cases when it is simply not possible to make a transfer of foreign property practically effective, but I put it to the noble Baroness that that merely reflects reality. Of course, any transfer involving foreign jurisdictions will involve close co-ordination between the domestic and overseas authorities. Actions will not be limited to just what the Bill provides for.

Clauses 35 and 39 face up to the reality that it is not in every case guaranteed that foreign property transfer activity will be effective. When it is ineffective we maintain that that ultimate risk must lie with the transferee, not with the Bank of England, which would put public resources at risk in a contract to which the Bank has not been a party. I understand the noble Baroness’s anxieties; we all have anxieties when the limits of our powers are reached, but we have to make provision for the fact that that may be the case. That is the situation that the Government think should obtain and why we have drafted Clause 39 as it stands, and why I ask the noble Baroness to withdraw her amendment.

Baroness Noakes: The Minister has very clearly repeated what he said earlier. The record will show that the Government are putting the transferee entirely at risk in the case of foreign property. If that is the Government’s position, that is fine, but any lawyer reading the clauses—and certainly Hansard and the way in which the Minister articulates them—will see that a transferee will be taking a risk that no commercial person would normally take. If that is the position that the Government want to achieve in the Bill it is their problem. On that basis, I beg leave to withdraw the amendment.

Amendment 73 withdrawn.

Clause 39 agreed.

Clause 40: Incidental provision

Amendments 74 and 75

Moved by Lord Davies of Oldham

74: Clause 40, page 19, line 5, after “purposes,” insert “cases or circumstances,”

75: Clause 40, page 19, line 6, at end insert “, cases or circumstances.”

Amendments 74 and 75 agreed.

Clause 40, as amended, agreed.

Clause 41: Procedure

Amendment 76 not moved.

Clause 41 agreed.

House resumed.

House adjourned at 10.08 pm.

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