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25: Clause 24, page 11, line 37, at end insert—
“(3) Where the Treasury receive a copy of a share transfer instrument under subsection (1) they shall lay a copy before Parliament.”
Clause 38: Termination rights, &c.
Amendments 28 to 30 not moved.
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31: Clause 41, page 20, line 6, at end insert—
“(3) Where the Treasury receive a copy of a property transfer instrument under subsection (1) they shall lay a copy before Parliament.”
Amendments 32 and 33 not moved.
Clause 48: Power to protect certain interests
Amendments 34 to 38 not moved.
Baroness Noakes: My Lords, the amendment inserts the word “independent” into Clause 54(2). This clause deals with the use of an independent valuer for a compensation scheme order. An independent valuer is to be appointed by a person appointed by the Treasury.
In Committee, I sought further details on the exact independence that would be sought for these independent valuers and tabled an amendment to make the relevant order spell that out. The Minister's response was that the valuer would be appointed by an independent person, or an independent panel. That would clearly go some way to ensuring that a genuinely independent valuer was appointed, but the Bill does not say that. So I am returning to the issue on Report with a simple amendment to make the independent valuer appointed by an independent person so that independence can be seen to be achieved. I beg to move.
Lord Davies of Oldham: My Lords, as the noble Baroness said, we debated the issue of the independence of the valuer in Committee and that debate encouraged us to bring forward government amendments to the code of practice to signal that the code can include information on certain compensation matters. This amendment states that the person appointing the independent valuer should be independent. I agree that the appointing person should act independently in his function. Therefore, the debate is about whether that needs to be achieved by requiring that the appointed person or panel be independent.
The starting point is that Article 6 of the European Convention on Human Rights requires a person who determines compensation to be independent and impartial. A person is not precluded from being independent and impartial because the Government appoint him. However, this is an area where we thought it desirable to signal that the independent valuer would not simply be appointed directly by the Government without external participation
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To be clear, we do not believe that this provision is required on fairness grounds under the European Convention on Human Rights, but we believe it is a helpful signal on this matter that the Treasury would not have a direct role in appointing the independent valuer. Even without requiring the appointing person to be independent themselves, I believe that the fact that they have a purpose and role distinct from the roles of the interested parties ensures that they can act with independence.
In short, we have taken the belt of an independent valuer, which is mandatory under the European convention, and added to it the braces of an appointing person or panel. I do not believe we need the additional security provided by any further contraptions for keeping our metaphorical trousers in place. For this reason and speaking with some authority, I do not believe the noble Baroness’s amendment is necessary and I urge her to withdraw it.
Baroness Noakes: My Lords, I speak as a person unfamiliar with belts and braces for keeping trousers up. The Minister said that civil servants could not be appointed, but the clause simply refers to a person appointed by the Treasury. Since I think that civil servants are persons—although I sometimes have a little trouble with that concept—and therefore could be appointed, can the Minister assure the House that a civil servant would never be appointed?
Lord Davies of Oldham: My Lords, that is the intention—independence of the Executive.
Baroness Noakes: My Lords, I shall have to take the Minister at his word on this subject. I beg leave to withdraw the amendment.
Clause 57: Valuation principles
40: Clause 57, page 28, line 27, leave out “to be applied” and insert “to which the valuer must have regard”
Baroness Noakes: My Lords, I shall speak also to Amendments 41 and 42. These are amendments to Clause 57, which deals with valuation principles. We find this approach to valuation odd. The Treasury is at pains to appoint an independent valuer, or so it tells us—the Minister has repeated that again. But, having appointed him, it then wants to use Clause 57 to tell him exactly how he should carry out his valuation.
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Clause 57 allows the Treasury to set out various things that it could tell the valuer to do. We have no problem with subsection (3), which mandates the disregard of financial assistance provided by the Treasury or the Bank of England; that is entirely proper in order to protect public money. But subsection (2) allows the Treasury to mandate all sorts of valuation methods, thus begging the question about why an independent valuer has been appointed in the first place if he has to be told in detail how to ply his trade. Subsection (4) allows the Treasury to tell the valuer to make assumptions which might not in fact be true.
The Minister gave no specific rationale for this other than the need to protect the public purse. We have to remember that the special resolution regime can be triggered without any actual public money having been committed. It is not a prerequisite of the regime that such a condition is fulfilled. In any event, we believe that it is bad government for the public purse to be protected by the use of valuation principles that are counterfactual or not in accordance with the judgment of an independent valuer.
The Minister said that the clause was ECHR-compliant. The Government always say that about their Bills, of course, and sign a declaration to that effect. But he cannot mean that any application of the sweeping powers in this clause would be ECHR-proof. It is highly doubtful that, say, the specification of a counterfactual under subsection (4) would survive a legal challenge.
My amendment seeks to change Clause 57 so that the valuer has to have regard to the principles that could be set out in a compensation scheme order but does not necessarily have to apply them and can still have recourse to his own judgment. In subsections (2) and (4), instead of the valuer having to follow the principles, the amendment requires him to consider whether it is desirable to follow them. I believe that this is a more realistic and, indeed, reasonable approach. I beg to move.
Lord Davies of Oldham: My Lords, we debated this issue fairly extensively in Committee when the noble Baroness expressed her anxieties about the existing provision. We believe that we have got it right, and I shall ask the noble Baroness to withdraw her amendment.
The valuation principles that we are putting forward would operate in two ways: first, by specifying certain methods or matters to be taken into account and, secondly, by requiring certain assumptions to be made as to the status of the bank had it not entered the special resolution regime.
It is appropriate for compensation orders to specify principles to be applied in determining the compensation payable. Failing banks are complex institutions, and valuation can be approached in different ways. Principles such as those in the Bill provide a framework within which to approach this complex situation.
Of course, it is essential that compensation is assessed in a manner compatible with the European Convention on Human Rights. However, the case law of the European Court of Human Rights makes it clear that contracting states enjoy a broad margin of appreciation in setting
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The accusation may be made that the only reason for the Government to have this power is in some way to rig the exercise. The justification for this power is not that at all. The Government have a legitimate role in setting parameters for a number of reasons. The first is to safeguard considerations of the public interest—for example, by requiring public financial assistance to be discounted so that compensation claims are not artificially inflated by public money. This is also achieved by setting out, where appropriate, the situation that would have held had the authorities not intervened under the special resolution regime.
The second is to give the independent valuer parameters to work within, so that his process does not become beset with collateral litigation seeking to undermine the decisions that he has taken as how to approach the valuation exercise. The independent valuer is meant to be an expert with experience of company valuation. Valuation principles allow the Government to set parameters for valuation based on wider considerations of the public interest.
However, it would be wrong to suggest that because such matters are outside the independent valuer’s remit, the Government will be the final arbiter of such matters. Any party who is affected is free to challenge the legitimacy of the valuation principles that have been included in the order. The higher courts will then consider whether the valuation principles are proportionate and strike a fair balance between the wider interests of society and the individuals affected by the exercise of stabilisation powers. The appropriateness of including the discretionary valuation assumptions and the nature of the assumption would of course need to be considered on a case-by-case basis and, as I have noted, they are open to challenge.
I do not accept that this is an unfettered power. Rather, it is an appropriate discretion to allow the Government in setting up compensation measures. I hope that the noble Baroness will accept that the Government’s case is sound enough for her to feel able to withdraw her amendment.
Baroness Noakes: My Lords, I thank the Minister for setting out the Government’s response. It is difficult to accept their rationale for Clause 57. The Minister effectively says that there is a legal remedy. I think that he must mean judicial review, because there is no other obvious legal remedy available. That process, while available, is costly, cumbersome and not very well directed at a lot of issues. I am sure that anybody who has worked in government will know that you can avoid judicial review by going through a lot of processes that make it look as though you have considered everything, even if you have not.
There are some real issues here as to whether the Treasury should have the power to specify things that are unreasonable, which the Bill allows it to do. The longstop is perhaps that no decent valuer would accept appointment if the Treasury had set unacceptable parameters in the compensation order. Of course, the Treasury might not want a decent valuer when the
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Amendments 41 and 42 not moved.
Baroness Noakes: My Lords, I shall speak also to Amendments 44 and 46. The amendments seek to amend subsection (6) of Clause 58, which deals with resolution funds that may be set up to pay any balance of funds after a bridge bank operation or temporary public ownership. I have tabled my amendments to subsection (6) but in haste omitted to table mirror amendments to subsection (7), but the issues are relevant to both subsections.
The amendments would introduce the concept of maximisation of proceeds, but the resolution fund order is permissive. It is not necessary that the Bank of England or the Treasury must maximise the proceeds, which means that they may not be required to have the residual interests of the shareholders in mind at all, except by reference to human rights issues. Amendments 43 and 44 would make this requirement to maximise proceeds mandatory.
It should be noted that the operation of paragraph (a) of the subsection means that the special resolution objectives and the code of practice will always trump proceeds maximisation, and so there can be no argument that the need, say, to protect depositors cannot come before proceeds maximisation, which will always come later in the order of consideration. In that light, I challenged the Minister in Committee to say in what other circumstances a resolution fund might not have the requirement to maximise proceeds, but the Minister did not give me an answer.
Amendment 46 would delete paragraph (b) of subsection (6). This is an oddity, because it requires an order to specify the extent of maximisation of proceeds. I do not understand how one can partially maximise anything as a matter of logic. I did not get an answer to that in Committee, either.
The Minister said that he would reflect on this prior to Report but his amendments in this group do not appear to deal with the points raised by my amendments. Instead, they deal with other amendments to which I spoke in Committee and get rid of the ridiculous word “subserviate”. The Minister’s officials asked to group
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Lord Myners: My Lords, the amendment concerns putting in place a resolution fund as a means of compensation and whether, once a fund is in place, there should always be a requirement on the Bank of England to manage the bridge bank in a manner that maximises the proceeds available in the resolution fund. I understand the intention and, indeed, the logic behind the amendment, but I shall set out for the House, as I did in Committee, why there may be circumstances why such a requirement would not be appropriate.
The authorities and stakeholders alike have been cognisant of the benefit of a bridge bank as a stabilisation option that can be used for a very short period to facilitate a commercial purchase onwards from it. The transfer of Bradford & Bingley into temporary public ownership and the immediate onward sale of its deposit book to Abbey Santander is an example of how the bridge bank might be expected to work. I note that this was achieved under distinct and different legislation, which does not explicitly contain reference to bridge banks. This was the effect of the resolution, both intended and achieved. In such a situation, I do not believe that the bridge bank is in existence for long enough for any reasonable management duty to be applied. For this reason, I do not believe that it should always be a requirement.
The noble Baroness may be concerned about the Government’s discretion over this matter. For example, the Government have discretion over the cut-off point after which a management duty should be put in place. However, this decision will of course be subject to full parliamentary scrutiny through the affirmative procedure and is challengeable through the courts. Therefore, there are enough safeguards to prevent this discretion from being misused in any way.
During the debate in Committee, there were a number of questions over elements of the bank resolution fund as set out in Clause 58. While the Government tried to answer them during the debate, those questions prompted us to reflect that this new concept should be described in more detail through the code of practice. This, therefore, is one of the reasons why we have added compensation arrangements as something that can be included in the code of practice through the amendments to Clause 5. I believe that this is a helpful and constructive development. Given that, I urge the noble Baroness to withdraw her amendment in due course.
Amendment 46 would remove, or perhaps it probes, Clause 58(6)(b). It may be helpful if I set outs the purpose of the provision. It is important to set out the nature of any duty owed by the authorities. As noble Lords will be aware, a number of different duties can exist in civil law. For example, in certain cases, a strict liability duty will arise. No matter how much care is taken, if the duty is not discharged, the person owing it will be liable for its breach. No one would suggest
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In Committee, the noble Baroness, Lady Noakes, expressed misgivings about the term “subserviate”. While admitting that it is defined in the Oxford English Dictionary and was used several times in the speeches of Sir Winston Churchill, the noble Baroness was concerned that the term is not used in legislation. Since the introduction of this Bill, the term “subserviate” has had quite an airing. Indeed, an internet search would reveal quite a few references in Hansard. Therefore, one is tempted to keep the term to try to raise its popularity and profile, or possibly create a Facebook page for it. But it was a serious concern and I must provide a serious response, or risk another chiding from the noble Baroness.
In drafting statutes, we do not seek to be hidebound or to adhere always to precedents. Rather, we seek to use the best words to encapsulate the concept in question. I do not think that the meaning of “subserviate” is opaque or confusing. However, concern was also expressed in the other place, where the standards of learning are perhaps not as exceptional as in this House, and it is for the Government to respond in a constructive manner. Therefore, I bring forward this amendment to replace the term “subserviate” with a new subsection to Clause 58.
The amendment states in plain language our intention that the management duty to manage a bridge bank or bank in temporary public ownership in a manner that maximises the proceeds available in a bank resolution fund will apply only so far as the duty is compatible with the special resolution objectives and the code of practice. I hope that this amendment satisfies both Houses’ concerns on this point and demonstrates our willingness to respond helpfully on these matters. I beg to move.
Baroness Noakes: My Lords, the Minister may get an opportunity to move his amendment in a moment, but not yet.
I thank the Minister for his comments in relation to my amendments. As usual, we heard the old line about judicial review providing the answer to anything that goes wrong, which we have never thought to be a good answer. Nevertheless, the Minister made some substantive points in his response, which will deal with the issues sufficiently for my purpose. On that basis, I am happy to withdraw the amendment.
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