National Security and Investment Bill

Lord Leigh of Hurley Excerpts

Committee stage & Lords Hansard
Tuesday 2nd March 2021 Grand Committee

Moved by

[Lord Leigh of Hurley]

3: Clause 1, page 1, line 11, leave out “or contemplation”

[Lord Leigh of Hurley (Con)]

My Lords, I thank my noble friend the Minister and his officials for his briefing and help. I suppose I should thank him also for his letter of 18 minutes before the start of this debate, but that has been explained adequately, so we look forward to reading that in depth. I also thank others who have been helpful on this amendment and the Bill, particularly friends from the BVCA, the ICAEW and Herbert Smith.

I think we all have a common purpose here; we all know what we want to achieve, and this is not a party-political matter. We all recognise that, last year, there was £170 billion of FDI into the UK. We have been so consistently successful in the UK at FDI that we frequently, if not for a decade or so, come second in the world league tables. We all need to do what we can not to damage our reputation as a country that is easy to invest in, with clarity and the rule of law not subject to the power of lobbying and political whims. I believe that there is unanimity in that respect.

The Bill must strike a balance between national security on the one hand and economic growth on the other. At present, it needs amending by amendments such as mine and those of fellow Peers if it is to strike that balance. Funnily enough, I read Isabel Hardman’s book over the weekend, Why We Get the Wrong Politicians. In it she quotes, anonymously, an MP who says, “You can ram Bills through in the Commons, but it’s much harder in the Lords.” I do not want to let her down.



I declare my interests. I am the senior partner of Cavendish Corporate Finance, which specialises in selling businesses, typically private businesses. Nearly all our clients are SMEs, so I have a lot of experience there. Sixty per cent or so of our buyers of our clients’ businesses are based overseas, the principal country being the United States of America, but they have included pretty much most industrial developed countries of the world, including in Asia. Cavendish is, of course, part of finnCap, the AIM nomad broker. So I have worked hard to encourage overseas investment. I was lucky enough to find myself on the business trip to China with David Cameron a few years ago.

--- Later in debate ---

[Lord Grimstone of Boscobel (Con)]

The noble Lord, Lord Clement-Jones, and I have had the pleasure of debating these matters at a meeting prior to this Committee, and I must confess that I was probably the author of the fishing analogy, which I may live to regret. The point is that when you are dealing with matters of national security, and these matters are so important, it is perfectly appropriate to use a large net to put the fish in, but then it becomes very important that the way your screening unit works removes fish from that net as expeditiously and efficiently as possible.

[Lord Leigh of Hurley (Con)]

My Lords, I thank the Minister for his response. As the noble Lord, Lord Fox, pointed out, he almost certainly has much greater experience than all of us in this Room combined in advising on transactions. For the avoidance of doubt, sadly the noble Lord, Lord Fox, has not paid me any fees in any matter, as far as I am aware, but I travel in hope. I have to disappoint my noble friend Lord Vaizey, because it does not look like the Minister will accept his very first amendment in whole. On the other hand, I do not think he has provided a slam-dunk answer, as he hoped, to reject Amendments 3 and 4 in particular.

We are very lucky to have the benefit of my noble friend Lord Lansley’s experience and wisdom from the Enterprise Act 2002, and I accept that that is where it came from. However, I do not quite see why there should be a cut-and-paste approach. The CMA will be dealing with a relatively small number of mergers of largely public companies. This will be dealing with all sorts, from minority investments of a few thousand pounds in 15% stakes to IP and—forgive me—a completely different kettle of fish. Therefore, the last thing one wants to do is to have to rely on a traditional review to see this sorted out. That would be hugely expensive and singularly inappropriate for most of the transactions envisaged, which will be of a much larger volume than the CMA and the legislation were structured to deal with. I very much hope that the Minister will have a chance to reflect on this and that he will be persuaded in particular by the point made by the noble Baroness, Lady Bowles—arrangements in progress must be strong enough. I beg leave to withdraw.

Amendment 3 withdrawn.

--- Later in debate ---

[Baroness Noakes (Con)]

My Lords, the voiding of a commercial transaction that has already taken place is a massive penalty for those who have entered into the transaction. Parliament should be very wary of legislating in this way if it is not absolutely necessary. I believe that, as drafted, the Bill goes beyond what is necessary.

A transaction may not have been notified where the parties to it did not believe that they were covered by the legislation, perhaps relying on a misinterpretation of the statement that will come out under Clause 3 or perhaps a misunderstanding of advice received from the investment security unit about the transaction. These could occur in situations of good faith, yet the Act is capable of inflicting the penalty of voiding the transaction even in such an instance.

I do not doubt that voiding a transaction may well be the right result if the transaction really does engage national security, but even then it is not necessarily the case that every transaction should be voided. We have to understand that Clause 13 is one of the parts of the Bill that will drive unnecessary voluntary notification, which I know that the Government will wish to avoid. The amendments in this group are helpful and proportionate and I hope that the Government can accept one of the formulations.

[Lord Leigh of Hurley (Con)]

My Lords, we have heard from a chartered accountant, a banker and a lawyer all in unanimity; it is very worrying. As I understand it, this approach is consistent with some regimes in certain countries. The idea of having a transaction fully voided would lead to many innocent third parties being in limbo. Would it not be better that a transaction or certain parts of it were voidable, as some parts of the transaction may not be in any way relevant to national security. That gives HM Government more flexibility. By being voidable, it allows for negotiation, discussion and parts perhaps to be voided and not the whole thing.

Once again, insisting that the transaction could be voided in legislation will simply deter overseas investors and buyers because it is a huge amount of uncertainty to have such a black and white separation. The amendments still allow for the dictum of the noble Lord, Lord Callanan, in respect of Clause 15 of non-notified acquisitions being able to be retrospectively validated rather than retrospectively invalidated. Giving the Government maximum flexibility seems a wise and good thing to seek.

[Lord Fox (LD)]

I want to pick up where the noble Lord, Lord Leigh, finished: it seems almost punitively value-destroying to have a mandatory process. There will clearly be times when voiding will be the inevitable consequence, but there are others when a retrospective approval would be best for the country, the value, the shareholders, the employees and all the other third parties connected to that business. To lock the Government into auto-voiding seems unnecessary. It may be designed to put people off from not reporting in future but, by their nature, those who do not report probably are not aware of these sanctions, so it is unlikely to have that deterrent effect.

On Amendments 41 and 44, the “Waste Land” amendments, certainty comes up again, as predicted. All they do is ask for a clear signal rather than something simply not happening being the signal. The noble Lord, Lord Hodgson, raised external messaging, but such clarity would also help build a body of case law which would help future practitioners understand what they should and should not do. Having that case law and those examples clearly delineated by a full stop rather than the whimper that is currently enshrined in law would be a much better way of exposing such cases for the textbook.

--- Later in debate ---

[The Deputy Chairman of Committees (Lord Caine) (Con)]

I have received one request to speak after the Minister, from the noble Lord, Lord Leigh of Hurley.

[Lord Leigh of Hurley (Con)]

Does my noble friend the Minister recognise that some countries allow voiding? He pointed out some that do not, but some do. Does he agree that if a transaction is voidable, it could still be declared void?

[Lord Callanan (Con)]

Could my noble friend repeat the question please?

[Lord Leigh of Hurley (Con)]

If the legislation says a transaction is voidable, it could still be declared void.

[Lord Callanan (Con)]

Yes, but we are arguing it should be declared void by automatic obligation of statute, rather than it being a power the Secretary of State could exercise. I have just explained that.