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5.15 pm
Lord Higgins: I support my noble friend on this point. It is obviously very important that anyone acting as a valuer should be independent. It may be difficult to find such a person unless we are clear what the criteria are as some people may already have a history in these matters which those affected by a claim for compensation, or who are making a claim for compensation, might think ought to be taken into account. I am also not the least bit clear what the qualifications of such a valuer will be. Are they to be accountants, bankers, economists or whatever? Indeed, will a single individual be adequate to meet the point?
The other thing that strikes me—it is a simple point—is that the Treasury will appoint someone to appoint the valuer. So the question is not only whether the valuer will be independent but whether the person appointing the valuer will be independent, particularly as he will be appointed by the Treasury. Perhaps the noble Lord could reassure us on that point.
Lord Davies of Oldham: I am grateful to noble Lords who have spoken on the amendment, which raises issues which run through the next two or three clauses; that is, the role of the independent valuer and the provisions relating to that person. I argue that the Bill already clearly spells out provisions to ensure the independence of the valuation process for compensation—which I regard as of the greatest importance—and therefore we do not need further provision on this matter in secondary legislation, as is proposed.
Clause 54 sets out the provisions for appointing and removing an independent valuer. There was extensive discussion in the other place about the need to make appropriate provision for the assessment of compensation. Compensation may, of course, be required in circumstances where there is a compensatable interference in a person’s property rights. Clause 54 provides two safeguards to put the independence and impartiality of the valuer on the strongest footing. First, the appointment of the independent valuer must be made by an independent appointing person. The noble Lord, Lord Higgins, asked who that would be.
Baroness Noakes: I wish to make a small point. The Minister said that the independent valuer would be appointed by an independent person. Unless I am mistaken, that is not what the clause says. Subsection (2) states:
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“An order must provide for the independent valuer to be appointed by a person”,
not necessarily an independent person. Therefore, we do not get independence coming in at that level. An entirely partial person could make the appointment.
Lord Davies of Oldham: We shall certainly ensure that the valuer is independent. We seek to distance authorities from the appointment as far as we can. The noble Baroness appears to be saying that a further safeguard needs to be inserted. I shall look at that but I make it absolutely clear that we seek to take the appointment away from government bodies directly to ensure that the procedure will be carried out by someone who is independent of the authorities in order to further guarantee that the person appointed will be considered independent. The appointing person can either make the appointment having regard to any criteria specified in the compensation scheme order, or must select a candidate from a list supplied by the Treasury. This allows for an independent person or panel to appoint a person who has the appropriate skills and expertise to carry out the process of valuation.
Subsection (4) ensures that an independent valuer can be removed only by a person specified by the Treasury and on the grounds of serious misconduct or incapacity, ensuring that the independent valuer has security of tenure and a level of independence as far as any removal from office might be concerned.
Clause 55 provides that the independent valuer may do anything necessary or desirable for the purpose of, or in connection with the performance of, the function of his office in order that he may carry out his role effectively. Clause 55 further provides that the Treasury may confer other functions on the independent valuer. For example, the Treasury may enable the independent valuer to apply to a court or tribunal for an order requesting information from parties, should this be necessary. The Treasury may also enable the independent valuer to publish, disclose or withhold information at his discretion. The clause therefore provides the valuer with the powers to gather and deal with the information that he needs in order to conduct effectively his valuation function.
Finally, Clause 56 sets out the remuneration procedure. Under the provisions of this clause, the Treasury must appoint a monitor to oversee the remuneration and allowances of the independent valuer, which again seeks to bolster the independence of the valuation process.
At every stage, the Government have been at pains to ensure that the Treasury is one stage away from decisions that relate crucially to the appointment, performance and remuneration of the independent valuer. We have set out in the primary legislation factors that ensure the independence of the valuer, in particular the conditions surrounding appointment and removal, the powers that we have given, or could give, to him, and the framework for remuneration.
We believe that these factors will ensure that any valuer is genuinely independent—which is the objective that we seek, in common with the noble Baroness in her amendments—and has sufficient powers to undertake his functions, which in turn ensures the compatibility
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As these provisions are included in the Bill—I have identified three consecutive clauses in which this is spelt out in considerable detail—I do not believe that further criteria on the independence of any valuer are needed in secondary legislation. The primary legislation is very clear about the nature of the independence of the valuer and how that will be identified and protected in his actions. I reassure the noble Baroness that the independent valuer will be appointed in accordance with the principles of fairness, as prescribed under Article 6 of the European Convention on Human Rights. Accordingly, the independent valuer will be independent from the interested parties, including the authorities and the Bank, and independent of other conflicts of interest, such as those derived from his own shareholdings. This is a requirement in terms of the international position in the European Convention on Human Rights. Of course, we will be fulfilling that requirement in the way in which the independent valuer is appointed.
I entirely appreciate the noble Baroness’s concerns that this role must meet the strictest standards of independence. We are governed by the European convention and, of course, by our concerns that are shared with the noble Baroness that this crucial role should have its independence guaranteed. That is why so much is spelt out in primary legislation and why we, therefore, do not accept that additional legislative provision needs to be made in secondary legislation. I hope that the noble Baroness will feel that I have given her the reassurance she needs to withdraw her amendment.
Lord Higgins: This matter would seem to have more substance than one might have thought at first. I take it from what the Minister said that he will seek to add a simple amendment to Clause 54(2) on the independence of the person who will make the appointment. He is not a figure of insignificance, given that he is specifically mentioned for remuneration and everything else. Will the Minister consider whether it is appropriate for the appointing person to be appointed by the Treasury, rather than, for example, the Lord Chancellor, or someone of that kind?
Lord Davies of Oldham: We always look with the greatest care at developments in the debates in this House and I will certainly look at that matter. However, the noble Lord, Lord Higgins, will also appreciate that this role will be demanding in the most extensive way and require particular areas of expertise. Therefore, it is not surprising that we regard this rather more as a Treasury matter than one for the Lord Chancellor. However, I take on board the noble Lord’s point. I can see the advantages of the additional independence that he is seeking, but he will appreciate that we need to ensure that our appointments to this highly skilled and important role of independent valuer are effective.
Baroness Noakes: When he looks at subsection (2) following the intervention of my noble friend Lord Higgins, the Minister might also wish to consider
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The Minister spent most of his time talking about independence from the Treasury, which clearly struck a raw nerve, as if that were to be the only thing guaranteed by independence. The main burden of my reasons for tabling the amendment was to ensure that the valuer was independent of the subject matter being valued—the failed bank and the property being transferred—and that the issue was adequately dealt with. The Minister referred me to Article 6 of the European Convention on Human Rights. I need to think about whether simply reading the convention in relation to the Bill is a sufficient set of safeguards, and I shall do that between now and Report. I hope that the Minister will also consider subsection (2) before then.
Lord Davies of Oldham: I will, of course, consider those matters. We are certainly governed by the convention and have to meet clear criteria of fairness with regard to these proposals. However, I reassure the House that in legal terms “a person” can, indeed, include a panel.
Baroness Noakes: That is interesting. I shall consider that further, and I beg leave to withdraw the amendment.
Clause 55: Independent valuer: supplemental
5.30 pm
Viscount Eccles: I shall be very brief because we have had an extensive discussion about independence, which will very much flow from the drafting of the secondary legislation, to which we have heard reference. I was struck by the word “reconsideration” in subsection (6) of this clause. Are there precedents for the concept of reconsideration? Who does the reconsidering, and would it not be much simpler to reduce the subsection to a short and conventional appeals procedure? I beg to move.
Lord Davies of Oldham: I hope that I shall not be speaking at cross-purposes with the noble Viscount. We had anticipated that he was concerned about another matter—one of some substance relating to the right of appeal. If I have misinterpreted his amendment, I shall stop.
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Viscount Eccles: I thought that there was always a right of appeal under common law. I am absolutely not contesting the right to appeal; I am questioning the concept of reconsideration and who would do the reconsidering.
Lord Davies of Oldham: We think that the word “reconsideration”, and therefore this part of the clause, is an essential part of the Bill, so I shall invest it with slightly greater significance than the noble Viscount may have anticipated. The clause specifies that a compensation scheme order may provide for an independent valuer to assess the compensation due to those who suffer interferences in their property rights that are subject to compensation as a result of an exercise of the powers under this part of the Bill.
We do not consider it necessary to put in place a bespoke appeal mechanism to satisfy the requirements set out in Article 6 of the European Convention on Human Rights. The possibility of recourse to judicial review satisfies the convention rights in that regard. However, for general policy reasons, once an independent valuer has arrived at his determination, we believe it is necessary and important that parties affected by that determination are able to ask the valuer to reconsider his decision and that they may appeal it in a court or tribunal.
It is of course typical in the English legal system to put in place arrangements for the review or appeal of determinations in relation to civil cases. In the case of the arrangements for the assessment of compensation for the former shareholders of Northern Rock, an independent valuer with specialist expertise in commercial valuations has been appointed to undertake the difficult and complex task of valuation. Parties affected by his determination have a right to request the independent valuer to reconsider his determination, which provides an opportunity for the parties to make relevant representations in that regard.
Following any redetermination, an appeal may be made to the Financial Services and Markets Tribunal, which has both commercial and legal expertise, and is therefore ideally suited to adjudicating over any disputes relating to the valuer’s determination.
We believe that this procedure for appeals is far more satisfactory than simply leaving parties to bring a claim for judicial review of the determination. That is why we consider it entirely appropriate that the Treasury must provide for such arrangements in the event that an independent valuer is appointed. I believe that this provision is an important part of the Bill and I wish to retain it. I hope that the noble Viscount, Lord Eccles, will appreciate that we set considerable store by the part of the Bill which he wants to see removed, and I hope that he will accept the Government’s reasons for wishing to retain it.
Viscount Eccles: I apologise. I can see now that my amendment should simply have sought to leave out paragraph (a) of subsection (6). If I understand the Minister correctly, reconsideration of a decision by an independent valuer is to be made, on request, by the independent valuer himself. On that basis, I am completely satisfied and beg leave to withdraw the amendment.
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Clause 56: Independent valuer: money
Viscount Eccles: I have tabled this probing amendment in an attempt to understand why we need monitors. In the proposed system, there will be an appointing person, an independent valuer, his staff and monitors, and overall, and at every stage subject to the drafting of the secondary legislation, the Treasury. It all sounds very expensive. Are there precedents for monitors of remuneration and/or compensation schemes, and, if so, in what circumstances? Has the requisite work been done to estimate the cost of all this? For example, judging from a previous debate, a tender might be put out in the search for a valuer and, if so, his remuneration will be set out in a contract. What would the monitor’s responsibilities be and who would the monitor be? I suppose that it could be a Treasury official but I guess from previous debates that that is not the intention. Perhaps the monitors are to be chosen, following another tendering procedure, from the private sector. Can we have a fuller explanation of the need for monitors? I beg to move.
Lord Davies of Oldham: I am under constant pressure to show that we are creating a truly independent role for the valuer. The noble Viscount even slipped in that we might have it in mind for the job to be given to someone from Her Majesty’s Treasury. That would be somewhat contradictory to the whole thinking behind this role, and I assure the noble Viscount that my notes say something entirely different. For example, a judge might undertake the role on a non-commercial basis. Here, we are concerned only that the Treasury should provide allowances and be responsible for the resources that make remuneration possible. The monitor’s role is clear. We want to ensure that there is someone to oversee the valuer’s remuneration and allowances, including the pension arrangements, and we want that to be processed as independently as possible. We do not want the Treasury to do this job. Although, as I am sure the Committee will appreciate, it would be more than capable of carrying out such a role with true independence, it might not be recognised among all parties that it was not compromising the concept of independence. That is why the monitor will be required to approve certain actions by the independent valuer—for example, the appointment of staff—and this will be done not by the Treasury but through this additional independent role.
I merely say to the noble Viscount, Lord Eccles, that we are trying to assuage the very anxiety that he let slip when he introduced the amendment. A Treasury role is always open to being criticised when it comes to the provision of resources. Here, there is an additional independent stage of monitoring, which keeps the
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Viscount Eccles: Indeed, I can see what the aim is. My problem is only that the Bill becomes more and more complicated and therefore will be more and more expensive to administer and carry out when it becomes an Act. Meanwhile, I withdraw the amendment.
Clause 57 : Valuation principles
Debate on whether Clause 57 should stand part of the Bill.
Baroness Noakes: I tabled my opposition to Clause 57 standing part of the Bill in order to initiate a short debate about the role of valuation principles in the context of a valuation. My fundamental question is why Clause 57 needs to exist if an independent valuer, who is presumably competent to carry out a valuation, is appointed. I do not object to the content of subsection (3), which ensures that a valuer does not pass on the value of financial assistance provided by the taxpayer to anyone else. That is perfectly correct. I do query, however, why compensation orders might need to be assessed by the principles set out in subsection (2). Those principles could produce a result which was not of value in any ordinary sense. Why, for example, are certain methods of valuation to be ruled out? Why is the valuer being deprived of the use of judgment in the correct methods to use? In what circumstances do the Government expect to use subsection (2)?
The Minister has been at pains to point out how the valuer will be appointed in an independent way, and one can only assume that the Government will ensure that the person will be of some standing, experience and competence. Under subsection (2), however, the Government can tell us exactly what to do.
I am also troubled by subsection (4), which is familiar territory to anyone who has been involved with the Northern Rock valuation order. My problem is that if these principles are insisted upon as opposed to applied as relevant in the judgment of the valuer, it may produce a result which is not fair. Fairness was debated in another place. My honourable friend David Gauke moved an amendment in which he tried to introduce a principle of fairness into the valuation process. Unfortunately the Government did not feel able to accept that helpful amendment.
Let us suppose that a failing bank was hit with the special resolution regime but that the authorities were overhasty in their judgment. The Minister will recognise that this is a concern that has been expressed in relation to the powers under this Bill; that is why we are particularly concerned about the nature of the hurdle in Clause 7, which we debated earlier. Let us suppose that the valuer finds that the bank was capable of operating as a going concern on plausible assumptions. Or let us assume that he finds that administration would not have been an appropriate basis for action. Subsection (4) allows the Treasury to specify a
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It would be wholly inappropriate to debate the specifics of the Northern Rock case in view of the current legal action. The Minister will be aware, however, that shareholders, and not just the hedge funds, felt strongly that their assets were being expropriated and would not be correctly valued because of the application of the valuation principles which were insisted upon in that valuation order. It is not implausible that this could happen if the powers were used in future. In addition, the existence of the power of the Treasury to specify a valuation assumption, perceived by others to be unreasonable, seems likely to lead to a string of judicial reviews, if nothing else. All in all, it seems fairer and, indeed, more efficient in valuation terms to leave everything to the valuer’s judgment. I look forward to the Minister’s response on why the Treasury needs the powers set out in Clause 57.
Viscount Eccles: Will the Minister assure the Committee that the compensation scheme order referred to in Clause 57 would be in place before the appointing person sought a valuer? One can imagine situations, following on from the exposition of my noble friend Lady Noakes, in which a potential independent valuer declined to bid on the grounds that they would not have true independence. That might well depend on the detail in the order.
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