Financial Services (Banking Reform) Bill

Lord Brennan Excerpts

Tuesday 26th November 2013 Lords Chamber

Moved by

[Lord Brennan]

84: Clause 27, page 40, line 1, leave out sub-paragraph (i) and insert—
“(i) takes or agrees to the taking of any decision or the carrying on of any activity by or on behalf of B as to the business of a group bank, or”

[Lord Brennan (Lab)]

My Lords, in moving this amendment I am gratified to see so few people in the Chamber. I drafted two amendments in this area of the Bill and found to my astonishment that the Public Bill Office had converted them into 10. The excess is not due to lowly endeavour. Their quantity does not overcome their simplicity, which is designed to improve the drafting of this section; the section creates a major new criminal offence in respect of banking.

I draw the attention of the House to the following facts. First, because it is a criminal offence in nearly all circumstances it would have had full attention from both Houses. Secondly, however, in this Bill’s history, this offence was not in the original Bill before the other House. It is a criminal offence of a major kind that will have serious attention only from this House, because, thirdly, if it goes back to the Commons in a shuttle process it is hardly likely to receive the appropriate attention that it would otherwise merit. That is an important question.

As the House agreed when this first came up in debate, one of the main purposes of the draft offence was to phrase it to create a major deterrent just by its wording. Of course people who transgress can be punished, but one would devise this kind of offence in order to deter people from thinking of committing it. Therefore, its wording is extremely important—more than in most circumstances. Many criminal offences are the result of spontaneous behaviour. This offence is directed at what you might call systematic misconduct.

With those points in mind, I turn to the amendments. First, Amendment 84 is not pedantry. In the Bill’s present wording on decisions with which the amendment deals,

“as to the way in which the business of a group … is … carried on”,

the use of “way” in this phrase is in legal terms extremely loose. When it is substituted by the word “activity”, as in,

“carrying on of any activity”,

it is more precise. The word “activity” is defined as behaviour or actions of a particular kind, whereas “way” is much more nebulous. This amendment is a drafting one designed for precision. If one did not want to accept it, one would want to be persuaded why “way” is more accurate and more easily understood by a jury than,

“carrying on of any activity”.

That amendment is straightforward. Amendments 88, 91, 93 and 99 carry on its usage in other parts of the clause. Amendment 105 makes clear the words “decision” and “activity”, although the singular includes the plural. Amendment 84 and consequential amendments stand apart from what I shall add. It is a simple and sensible amendment.

On Amendment 95, when you are dealing with corporate activity and the decisions or activity of a group of individuals that lead to a major event such as the failure of a bank, all that imports a mixture of events and circumstance. Therefore, with that background, one must be very careful in a legal context about using just the word “cause”. You face the inevitable argument from defendants: “I may have done something wrong, but it wasn’t the real cause”. Most statutes that deal with this kind of issue use words like the ones in this amendment or in the amendment in the name of the noble Lord, Lord Phillips, “cause”, or “contribute significantly to”. That wording prevents defendants inviting juries and judges to enter into philosophical discussions about the extent of causation by virtue of the acts that were committed. That is extremely important; when it comes to a trial we deal with juries, and we want language that will enable them to come to common-sense conclusions. I suggest to the House that this is a commonsense amendment; the amendment in the name of the noble Lord, Lord Phillips, is to the same effect but with slightly different wording. Therefore, that also stands apart.

The next issue is recklessness. The noble Lord, Lord Deighton, on opening at Second Reading, said that this created an offence of “reckless misconduct”. The terms of the offence do not use the word “reckless” as we identified it on the previous occasion. That is extremely important, because at Clause 80(6) in the same Bill the intended statute creates an offence of recklessness. It actually uses the word “recklessly” to describe a certain action. It can be guaranteed that lawyers will argue that if a statute uses the word in one clause but not in another, then where it was not used it was not intended. How could Parliament describe two offences as having the same effect, using the word “reckless” in one but not in the other? That point therefore requires us to consider whether the wording covers recklessness to an adequate extent.

In the helpful but indeterminate discussion that I had with Treasury and Home Office lawyers, it crossed my mind that the case which they mentioned—a case called Cunningham—is not the current Supreme Court authority on the word “reckless” in this kind of offence. The appropriate authority to look at is R v G in 2004. The wording is simple. The decision says that a person acts recklessly with respect to a result if he is aware of a risk that it will occur—that is straightforward enough—and it is, in the circumstances known to him,

“unreasonable to take the risk”.

The intention of that case was to produce a definitive meaning of the word “reckless” for general criminal law. Therefore, let us test that standard set by the Supreme Court against the present wording, to determine whether it meets the current judicial test and whether it should match that test or if there is justification for a different test. This offence differs from R v G in three ways.

The first is the use of the phrase,

“far below what could reasonably be expected”,

rather than, “is unreasonable”. It makes a difference. This means that the jury will be told—in a case where a judge will have to determine whether there is an offence of this kind—whether “far below” only creates criminal liability for the most egregious acts or omissions—disastrously bad mistakes which jump off the page. That is what “far below” imports. This, to many, would strike one as an extraordinarily lenient way of approaching people who ruin a bank—that they should only be liable if they have been guilty of the most stupid and egregious mistake. That difference, having regard to the risk, is not justified. In this amendment, therefore, “far below” is deleted so as to be replaced by the words, “is unreasonable”.

The second point, by way of a difference to the case of R v G, is that the risk to be guarded against by the people involved is the failure of a bank. Therefore, to favour such conduct with a narrow test—the most egregious conduct—appears to be unwarranted in social justice terms. Why should this test be narrow? If, as I understand it, the offence is intended, despite my suggestion to the contrary that it does not in Committee, to involve wilful blindness—people deliberately avoiding looking at the risk— how is a judge or a jury going to assess somebody who is wilfully blind so as to be totally unreasonable, compared to somebody who is wilfully blind in the most egregious of circumstance? It is a complete paradox of terminology. You are either blind to the risk or you are not. The concept of extensive, as opposed to minimal, wilful blindness is absurd. It is an invidious distinction and will produce serious confusion. The fact that it is used in corporate manslaughter terms is not to the point. As I indicated in Committee, a corporate manslaughter event is usually an explosion, a building collapse, or a crane falling over: the circumstances cry out as indicating the “far below” standard compared to ordinary industrial safety standards. It is not the same circumstance; it is not an appropriate analogy.

The third difference that I suggest to the House is unwarranted is the test. If you look at the offence outlined in Clause 27(1)(c), the test is whether the conduct fell “far below” or was unreasonable, having regard to,

“what could reasonably be expected of a person in S’s position”.

In this context, the unreasonableness of conduct should be tested against the standards of people in that position: the unreasonableness, not gross unreasonableness. There is already a test that can be used and the “far below” point simply does not add to that. What could reasonably be expected of a person in his position is enough.

The House has been patient in listening to this. The fact is that in a few minutes I have summarised what will take days in court hearings about what this all means. What we want to avoid is the occurrence of court hearings. We do not want terminology that will provoke legal argument. The supposed improvements by these amendments that I have advanced at this stage have been debated before. If the Government are not sure of their ground regarding what judges and juries will do, they really ought to take independent opinion from Treasury counsel, not internal lawyers who have no real experience of criminal litigation. I commend these amendments to the House.

--- Later in debate ---

[Lord Newby]

I am not sure that I do, my Lords, but I wonder if I might write to the noble Lord to clarify our thinking and, it is hoped, persuade him that we have got it right.

[Lord Brennan]

My Lords, listening to the exposition of the Minister leads an experienced lawyer to think that those were the kinds of arguments that would make for an entertaining tutorial at university and deprive the participants of any career at the criminal Bar, because they simply would not know what they were talking about in terms of what a judge and jury would expect by way of argument. I am sorry to put it so bluntly, but it really is a clash with the Interpretation Act that would lead to ribald laughter in most criminal chambers. I am being serious about this. It is the kind of argument that you would expect to get from a bright lawyer with no criminal law experience. The Government must face up to this. I do not understand why they cannot take advice from a competent independent Treasury counsel on the scope of the offence in order to make sure that they can prosecute, or at least hope to prosecute. Creating such an offence in-house is, I think, highly suspect.

I will go through this point by point. First, why should not the statute say decision and/or decisions—one of the two? Secondly, why, as the noble Lord has suggested, do we have to get ourselves into the circumstance of having to identify the key decision? It may be extremely difficult to do that because it may be a refined banking judgment where a series of acts or decisions which led to failure may be cumulative and not the result of the key decision. Thirdly, how the word “cause” in the criminal law can be construed to be “significantly contributed to” is not, I think, something that figures in the criminal law books.

I turn next to corporate manslaughter. The argument has to be met. The fact that you get the same words in another statute is of no importance until you consider the context in which the words are being used. Far below that, in the industrial safety context, is the matter of common sense. In terms of banking behaviour, it is an extremely complex exercise to expect a jury to carry out, and an unnecessary one. The answer given in response to the amendments did not include any explanation of why this statute is taking itself down a different route from R v G. Wilful blindness is a specific criminal law phrase designed to embrace the people who deliberately close their eyes to something. It does not embrace innocent incompetence. The very word wilful imports the culpability of it.

My last point, in agreement with my noble friend Lord Eatwell, who is known as an academic, is that the legislature would be shooting itself in the foot if it created a criminal offence which the public came to treat as having no effect, bordering on the ridiculous. That would be a major political mistake. Those on the government Bench who take such matters into account should pay more attention to that than to the legal advice they are getting. I beg leave to withdraw the amendment.

Amendment 84 withdrawn.