National Security and Investment Bill

Debate between Lord Vaizey of Didcot and Lord Hodgson of Astley Abbotts

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

[Lord Vaizey of Didcot (Con) [V]]

Second time lucky. I am not aware that an amendment like this was tabled in the other place when the Bill was being considered. However, Amendment 5 and the subsequent amendments are fairly clear, in that they substitute the word “voidable” for “void”. The amendments are designed to ensure that transactions are not automatically voided if a company fails to comply with mandatory notification procedures. I hope to set out in my opening remarks why that should be the case.

As far as I am aware, the Government have tried to make it clear that they could retrospectively accept a notification, and therefore in effect ensure that a transaction was not voided, so this amendment seeks to realise what I think is the Government’s ambition. Amending the sanctions in this way would therefore be consistent with their position and would show that the power to unwind a transaction to make it void would be a last resort used only in the most exceptional of cases. I accept, of course, that it is important to have significant sanctions in place where a transaction subject to the mandatory notification obligation is completed without first obtaining approval from the Secretary of State, but such sanctions need to be workable in practice—they need to be credible. Treating such an error as to make a transaction automatically void—as currently envisaged in Clause 13—would in reality give rise to a host of practical difficulties that would make it unworkable in practice.

I also venture to suggest that the approach is inconsistent with other established regimes in other jurisdictions, such as Australia, the US and Canada, where a problematic transaction is not automatically void but the authorities are able to step in and issue unwinding orders for parts or all of a specific transaction. It would be far preferable to provide for a similar “voidable” power, giving the Government the power to declare such a transaction—or parts of it—void if it gave rise to national security concerns but not automatically making that the case. This would mean that the Government could consider the circumstances of each transaction and provide workable steps to take to unwind the transaction where that is considered necessary because of national security concerns.

Declaring a transaction void is effectively to treat it as if it never happened. However, the acquisition which has given rise to the exercise of the voiding may be part of a much wider transaction. For example, as part of the acquisition, the acquirer will have paid consideration to the sellers as well. Following the acquisition, the acquirer may have invested in the business, and third parties may have contracted in good faith with the acquirer in relation to the business. Declaring a transaction automatically void due to breach of the standstill obligation could result in a situation where several parties—many of whom may have had no culpability at all for the failure to notify—are left in limbo and may also suffer financial losses as a result. I submit again that the proposed approach seems unworkable in practice, which is implied in the Government’s own approach but not in the Bill.

Will the Minister also consider a situation where the parties to a transaction have selected a law other than English law as the governing law of the agreement? Is it possible that a foreign court would continue to treat a non-notified transaction as valid? Would that not lead to extraordinary uncertainty? While these provisions will have full force and effect in relation to acquisitions governed by English law, I do not see how they can apply if the transaction is governed by US or other law. I beg to move.

[Lord Hodgson of Astley Abbotts (Con)]

My Lords, this is the first time that I have spoken in this Committee, so I draw attention to my entry in the register of your Lordships’ House. I wish to speak to Amendments 41 and 44 in this group, which I have tabled with the support of the noble Lord, Lord Clement-Jones, for which I am extremely grateful. I am also grateful to the Law Society for its assistance.

The two amendments build on remarks made by my noble friend Lord Vaizey in moving Amendment 5. Amendments 41 and 44 are to Clause 13, which is entitled “Approval of notifiable acquisition”. I am afraid I have to argue that that title is, at best, ingenuous because, under the wording of the clause as presently drafted, there is no requirement for the Secretary of State to register his disapproval; instead, his silence is all that is needed. I argue that, from the point of view of providing certainty for investors, bankers and—last, but by no means least—companies, their management and employees, this is not good enough. Furthermore, this silence inhibits a proper degree of parliamentary scrutiny, making it more likely that cases can be slipped through under the radar. It will also prevent Parliament having the opportunity of examining how practice may be shifting as regards preserving the delicate balance that this Bill seeks to create and maintain between protecting national security and providing maximum safety for investors’ property rights.

We need the spotlight to be shone on those tricky areas so that decisions taken by the Secretary of State have to be justified openly and publicly. That is what Amendments 41 and 44 seek to achieve. Famously, TS Eliot wrote:

“This is the way the world ends

Not with a bang but a whimper.”

In this difficult policy area, a whimper is insufficient. I see no reason why in an open society the Secretary of State should not be under the maximum pressure to provide a clear, concise and public declaration of his decision and the reasons for it. Our society, together with our business and investment community, are entitled to no less, so I very much hope that the Government will be able to accept these two amendments.