An orgy of state aid

October 8 2008

I’m sorry you’ve not heard from me for a week: it’s been a busy time. A busy time, too, for finance ministers, central bankers and treasury officials all over the western world as country after country started to break ranks and support its banks, the Irish taking the lead in Europe with a promise by the government to stand behind Irish banks; then a change of mind by Germany.

You might wonder whether all this doesn’t breach EU state aid rules; and yes, all this support for banks is clearly state aid, since it supports specific firms and sectors of the economy. In cases like that of Ireland, it even does so in a discriminatory manner, since it favours Irish banks, rather than any banks established or operating in Ireland.

However. State aid can be justified under articles 87 and 88 of the EC Treaty. Article 87 makes clear for instance that aid

to remedy a serious disturbance in the economy of a Member State

can be ruled by the Commission to be compatible with the common market. They already have ruled Britain’s support for Northern Rock compatible, for instance, and the Danish rescue of Roskilde Bank, in line with the Commission’s guidelines on state aid for rescuing and restructuring firms in difficulty.

Obviously the Commission is going to have to approve aid to banks – anything else would be madness given the current turmoil, and ultimately competition would not be helped if HSBC is the only bank left standing in Europe. But I think it’s right to stress that the rules are flexible and cannot simply be ignored. In fact, I’d go so far as to say that the Commission can play an essential role in this crisis, learning from member state’s proposals and insisting on adjusting each package to best practice, minimising the impact on competition in financial services. So I’m glad Neelie Kroes will as a matter of urgency be publishing guidelines this week specifically about state aid and bank rescues.

One of my best friends is the government’s top state aid lawyer; no wonder I haven’t seen him for a pint lately.

2008-10-08T15:14:00+00:00Tags: , , , , |

Limbu and others v Home Secretary

October 1 2008

I’m speaking on a course this morning, so don’t have time to properly comment on yesterday’s judgment by Blake J. in favour of retired Gurkha servicemen wanting to settle in the UK. I thought you’d want to see the judgment itself, though. They lost of the first limb of their claim, discrimination; but succeeded in arguing that the scheme the government had adopted was irrational.

2008-10-01T07:10:00+00:00Tags: , |

Global financial crisis: the legislative responses

September 30 2008

It’s becoming clearer every day that what we’re living through is the biggest financial crisis since the 1930s: Alistair Darling was right in his Isle of Lewis interview with the Guardian a month ago. Of course everyone’s looking to Washington right now, wondering whether Congress will be able to agree a rescue plan. I thought you’d be interested to see the text of the Emergency Economic Stabilization Bill that’s just been rejected.

But some attention is already being directed to what steps Parliament might need to take here. This morning at the Tory conference David Cameron promised to cooperate with the government in getting what he called the Banking Reform Bill passed. I think the draft clauses he means must be those contained in this consultation document, which set out a clear statutory framework for the FSA in effect to authorise the use of, and for the Bank of England to exercise, stabilization powers when a bank is in trouble, including sale to the private sector, transfer to a “bridge” bank set up by the Bank of England, and temporary nationalisation.

I’ve already blogged about the recent measures to outlaw short-selling; for good measure, here’s the Bradford & Bingley PLC Transfer of Securities and Property Order etc. 2008, made under the Banking (Special Provisions) Act 2008, which the government passed in order to nationalise Northern Rock.

Interestingly, the transfer order vests the shares of Bradford & Bingley in the Treasury Solicitor, Paul Jenkins, as nominee for the Treasury. I doubt he expected, when he took on the job a couple of years ago, that he’d end up wiht a bank on his hands.

2008-09-30T16:56:00+00:00Tags: , , , , |

Le salaud lumineux

September 25 2008

David Pannick’s Times column today is about the most famous French advocate of the age, Jacques Vergès, a repellent yet compelling figure whose political extremism and cynicism make radical British lawyers look like naive lackeys of the establishment.

He first came to my attention when I was living in France in the mid-eighties and he defended Klaus Barbie, the “butcher of Lyon” in his trial for crimes against humanity. The strategy Vergès employed in that trial was to accuse France of crimes against humanity in its colonies and to argue that it had no moral right to judge Barbie; in essence, to accuse liberal democracy of a hypocrisy so deep as to rob it any moral authority – an argument all extreme leftists use. I think what’s repellent about him is not the people he defends – no lawyer has a problem with the idealism of those who wish to defend unattractive clients to ensure justice is done and injustice avoided. My only difficulty with what I call “defenceism” (that attitude among some criminal lawyers that suggests the state oppresses whenever it prosecutes, that miscarriages of justice are legion and that lawyers should only ever defend) is that it’s sometimes hypocritical itself, since some defenceists want to avoid defending those accused of rape. No, I think what makes people uncomfortable about Vergès is his utter cynicism about law. He doesn’t seem to believe in law as a system for doing right or making human society more moral – but simply and solely in speaking up for those who would destroy law and morality. His book, La Justice est un Jeu, perfectly captures what’s fascinating and replusive about him: in elegant French he tells tales of France’s past crimes, arguing that no court has a firm place from which to judge and that law is a hollow joke. Pannick mentions the missing years of his life: one has to wonder whether he spent the seventies perfecting his political and moral nihilism.

After all that, you’ll be surprised to hear that I can’t help admiring him in a perverse way. You have to be impressed by the way he takes pride in his own scandalousness. He certainly does what he does without fear or favour; and in his own indirect, perhaps unintended way he does serve the public. He’s certainly an intriguing figure. By the way, I once heard him arguing in a TV interview that france should abandon the inquisitorial system of criminal justice and adopt the Englsih adversarial system, which he thinks is fairer to defendants.

2008-09-25T14:24:00+00:00Tags: , , |

Legislating to abolish child poverty

September 24 2008

In his speech at the Labour conference yesterday, Gordon Brown proposed new legislation to enshrine his government’s commitment to abolish child poverty by 2020 (or as the article puts it, he vowed to bring in ground-breaking legislation). Mm. Don’t get me wrong: I strongly support his political commitment to achieving this – and just wish he were nearer to achieving it. But I think it’s a silly thing to legislate about. I’m not the kind of legal purist (a few of whom are still found at 36 Whitehall) who thinks all legal duties must be enforceable, purpose clauses are impossible and all the rest of it, but I do think legislation should serve some real purpose. So I’m sceptical about this idea.

How would you frame a law requiring child poverty to be abolished? And what would it mean? If it merely said that child poverty “shall be abolished”, then whose duty would it be to achieve it? Ministers may well be tempted to do something like this – or else to slough off the duty onto local government. If it’s framed as either local or central government’s duty, then what happens if the government doesn’t achieve it? Should there be some sanction? I think the legislation would have to make provision for an unambiguous definition and measurement of child poverty and probably give a formal role to some body like the Office for National Statistics to report on the figures, plus a detailed date – say, 31 December 2020 – for the target to be achieved.

The real sanction for failure to achieve political aims like this is itself political – which is a clue about why it’s a bit daft to translate it into legal terms. I suspect the truth is that this is just a wheeze to embarrass the opposition, so that Gordon Brown can accuse David Cameron of wanting to repeal the duty. It wouldn’t be the first time Labour ministers have thought up a trick like that. If that’s what this is about, then to go forward would be an abuse of Parliament and the legislative process.

2008-09-24T14:02:00+00:00Tags: , , , |

Head of Legal "wrong" shock

September 23 2008

I know it’s scarcely credible, but I was wrong in my guess that the government would legislate to avoid competition procedures entirely in the LLoyds TSB-HBOS merger: an anonymous commenter here, and Angelo Basu at ConservativeHome’s CentreRight blog, were right in thinking the government intends to extend the public interest grounds on which ministers can issue an “intervention notice”, essentially taking over responsibility for making the competition decision themselves. Interventions are dealt with under Part 3, Chapter 2 of the Enterprise Act 2002; the government must be intending to make an order under section 58(3), at which point John Hutton will be able to intervene, although both Houses of Parliament will need to pass resolutions approving the order within 28 days, under section 124(7).

I’ve had qualms about this approach: it raises questions about how the procedure will work, how the government will decide whether to clear the merger, and coneivably even about whether it has power to make the amendment. But it looks as though government think no one will want to question it all too closely – and they’re probably right about that.

The procedural qualm is what to do about the need for an OFT report into the merger, which is normally required under section 44(2), following an intervention notice. One option is to require the report as normal – the problem being that this means formally that the merger is not yet cleared and competition procedures are being gone through. I wonder if there’s a slight potential for the government to look yet again as though it’s announced something that turns out not quite to be what it appeared. The other option is to rely on a riskier interpretation of section 44(2), reading it as giving ministers merely a discretion to require a report. If John Hutton doesn’t ask for an OFT report then he avoids the embarrassment of having to wait for one and read it. On the other hand, rule-of-law purists might wonder on what basis he ultimately makes the decision to clear, if he has no advice from the statutory body which exists to report to him on such things. And whether he can lawfully dispense with the report.

Finally, I wonder a bit about whether there’s power to make this amendment at all. If you look at Part 3, Chapter 2 it’s pretty clear that what this intervention notice procedure is really intended for is to deal with mergers which may well be cleared by the OFT and Competition Commission on pure competition grounds, but which ministers may want to prevent in the public interest, because of national security concerns or worries about media ownership. To use this process to ensure a merger is cleared is arguably distorting or abusing Parliament’s intention, and to make an amending order under section 58 to achieve a result that appears not to have been Parliament’s intention – to make sure a merger goes through because of the need for financial stability – seems to me arguably ultra vires. There’s no real problem about that if no one’s ever going to make a legal challenge – law bloggers rarely cause trembling in the corridors of power or even in the bars of power at Manchester’s G-Mex – but I do wonder what Parliamentary scrutiny committees will say about it. I think the JCSI will fall down on its job if it does not at least publish correspondence querying BERR on its justification for this use of the power.

2008-09-23T10:57:00+00:00Tags: , , , |

Short selling now market abuse

September 19 2008

Last night it was reported that the FSA would act to clamp down on “short selling“; the objective obviously being to deter speculative attacks on banks such as those on HBOS that went on for some time before the merger announcement with Lloyds TSB.

Sure enough, well before markets opened this morning, the FSA had already exercised its powers under section 119 of the Financial Services and Markets Act 2000, amending its market abuse code (or to use the FSA’s own non-statutory terminology, its market conduct sourcebook) to state that in the FSA’s view, creating or increasing a short position amounts to market abuse. Market makers are exempted. Here’s the FSA instrument making the change, and here’s a list of FAQs prepared by the FSA.

This now means the FSA will be able to take action against short sellers, imposing penalties on them under section 123 of FSMA.

2008-09-19T01:35:00+00:00Tags: , , |

The Lloyds TSB HBOS merger

September 18 2008

I’ve been wondering how, legally, the government will exempt the Lloyds TSB-HBOS merger from competition law; some of the reports about this are understandably fairly vague.

So long as both Lloyds TSB and HBOS receive over two thirds of their EU turnover within the UK – turnover in North America and Asia doesn’t count, note – then the merger does not have a Community dimension, and we only need be concerned about UK law. See article 1 of Regulation 139/2004, the Merger Regulation. A member state could ask the Commission to get involved anyway under article 22, if the merger threatens to significantly affect competition in its market, but I doubt that would be the effect of this merger in any member state – and anyway, the Commission would I think clear this deal, since under article 2 it must take into account the interests of “ultimate consumers” and economic progress. That deals with EU competition law.

Domestically, I think what the government must have in mind is an order under section 277 of the Enterprise Act 2002, perhaps amending Part 3 of the Act, which governs mergers and gives the OFT its regulatory functions in relation to them; the amendment perhaps providing that Part 3 doesn’t apply in the case of any merger the Secretary of State may specify.

The government would argue that ministers have power to make such and amendment under section 277 because it would be supplementary provision for the general purpose of making provision about mergers, and modifying “this Act” to use the wording of section 277.

The amendment would be made by statutory instrument, and would most likely come into force immediately. While normally the government would lay such an order before Parliament 21 days before it comes into force, to allow scrutiny by the Joint Committee on Statutory Instruments and the Lords Merits Committee, I imagine government lawyers have already been on the phone to Parliamentary officials to explain why this is an exceptional case justifying breaching the (non-legal) “21 day rule” – a view the Parliamentary authorities will surely accept. I also expect a draft order is being prepared right now by a lawyer at BERR, though the precise form of amendment will need a bit of thought.

When MPs get back to Parliament they’ll have 40 days in which to annul the order if they want to – it would cease to be law immediately. Something makes me think no MP will want to move annulment, though.

2008-09-18T14:07:00+00:00Tags: , , , , |

Electing Labour’s leadership: some thoughts

September 16 2008

The National Executive Committee has decided not to issue nomination form for the leadership of the Labour Party: the BBC has the story, and Guido Fawkes gives us the text of the press release. And very interesting it is, if you have a lawyer’s mind. The key bit is:

A Leadership election when in Government can only be held if requested by a majority of party conference on a card vote, only Labour MPs can trigger the process and the NEC is confident that most MPs know their responsibilities under the rules.

The Labour Party has followed this procedure for 11 years, as long as we have been in government under these present rules, and it has not required the issue of nomination forms at any time.

Notice that this seems to accept by implication that MPs can trigger the process regardless of whether nomination forms are issued. It certainly does not say in terms that there can now be no election, or that the non-issue of forms preempts the role of MPs in the process.

Looking at the Labour Party’s rule book, I think this makes sense. Page 24 is the key bit. Rule 4B(2)Bii (NB – how on earth can politicians complain that lawyers’ drafting is complex?) says that

Where there is no vacancy, nominations shall be sought each year prior to the annual session of party conference. In this case any nomination must be supported by 20 per cent of the Commons members of the PLP

but rule 4B(1)A makes it clear that the NEC can vary this. So, today’s decision is well within the rules, and I don’t see how any application for an injunction could succeed, either as a judicial review (the argument would have to be that the nature of this decision is of such public importance that in effect the NEC is exercising a public function in deciding whether to issue forms) or as a contract claim (the argument being that the NEC has breached the terms on which party members have signed up).

However. The way I read the rule book, there is nothing that suggests that an NEC decision to vary the rules by not seeking nominations has the result that nominations are barred or automatically invalid. Nor do I see anything requiring nominations to be in any particular form. So I think that Commons MPs can still submit nominations in spite of today’s decision – and I note that the text of Labour’s press release is consistent with that view.

If 70 MPs did write in nominating a challenger, there’d have to be a card vote at conference under rule 4B(2) Dii (over the page on page 25 of the rule book) in favour of an election, in order for one actually to be held.

The difficulty of course is that MPs would have to choose now who they want as leader, and to nominate him or her. The ruse about nomination forms was meant to get round this by making it a test of how many would fail to nominate Gordon Brown, rebels knowing it would be more embarrassing for him looked at that way.

But still. I’ve long thought backbench Labour MPs are a pretty pathetic lot, but there is still a chance her for them to force their leader out, if they really want to. Jon Cruddas, for instance, would need only 21 more nominations than he received in last year’s deputy leadership contest in order to be put up as a challenger now.

2008-09-16T15:46:00+00:00Tags: |

Pakistan: some judges reinstated

September 8 2008

It seems that they’re inching in Islamabad towards restoration of the judges deposed by General Musharraf, and to the constitutional position before the emergency he declared as a means of hanging on to power. The Guardian says three supreme court judges have been reinstated; although Dawn’s more detailed report says they’re in fact judges of the Peshawar High Court, an important court though not of course the same thing. This piecemeal, divide-and-rule approach isn’t good enough, though, and I admire Ijaz Afzal Khan for refusing to take oath until the former Supreme Court Chief Justice Chaudhry is reappointed. I like him see now reason why all the deposed judges should not be be sent back to their courts immediately. The politicians should stop bickering and get on with it.

2008-09-08T12:50:00+00:00Tags: , |
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