R v Panel on Take-overs and Mergers, ex parte Datafin Plc

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeTHE MASTER OF THE ROLLS,LORD JUSTICE LLOYD,LORD JUSTICE NICHOLLS
Judgment Date05 Dec 1986
Judgment citation (vLex)[1986] EWCA Civ J1205-3
Docket Number86/1091

[1986] EWCA Civ J1205-3

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION (DIVISIONAL COURT)

(MR. JUSTICE HODGSON)

Royal Courts of Justice.

Before:

The Master of The Rolls

(Sir John Donaldson)

Lord Justice Lloyd

and

Lord Justice Nicholls

86/1091

Regina
and
The Panel on Take-Overs and Mergers
Ex Parte Datafin and Prudential-Bache Securities Inc.

MR. J. LEVER, Q.C. and MR. D. TURRIFF (instructed by Messrs. S.J. Berwin & Co.) appeared on behalf of the Applicants (Datafin and Prudential-Bache Securities Inc.)

MR. R. ALEXANDER, Q.C., MR. T. LLOYD, Q.C. and MR. K. ROWLEY (instructed by Messrs Freshfields) appeared on behalf of the Respondent (The Panel on Take-overs and Mergers).

MR. JONATHAN SUMPTION, Q.C. and MR. S. RICHARDS (instructed by Messrs. Hepworth & Chadwick) appeared on behalf of the Interveners (Norton Opax).

MR. JONATHAN SUMPTION, Q.C. and MR. S. RICHARDS (instructed by Messrs. Ashurst Morris Crisp) appeared on behalf of the Interveners (Samuel Montagu & Co. Ltd.)

THE MASTER OF THE ROLLS
1

The Panel on Take-overs and Mergers is a truly remarkable body. Perched on the 20th floor of the Stock Exchange building in the City of London, both literally and metaphorically it oversees and regulates a very important part of the United Kingdom financial market. Yet it performs this function without visible means of legal support.

2

The Panel is an unincorporated association without legal personality and, so far as can be seen, has only about twelve members. But those members are appointed by and represent the Accepting Houses Committee, the Association of Investment Trust Companies, the Association of British Insurers, the Committee of London and Scottish Bankers, the Confederation of British Industry, the Council of The Stock Exchange, the Institute of Chartered Accountants in England and Wales, the Issuing Houses Association, the National Association of Pension Funds, the Financial Intermediaries Managers and Brokers Regulatory Association, and the Unit Trust Association, the Chairman and Deputy Chairman being appointed by the Bank of England. Furthermore, the Panel is supported by the Foreign Bankers in London, the Foreign Brokers in London and the Consultative Committee of Accountancy Bodies.

3

It has no statutory, prerogative or common law powers and it is not in contractual relationship with the financial market or with those who deal in that market. According to the introduction to "The City Code on Take-overs and Mergers", which it promulgates:

"The Code has not, and does not seek to have, the force of law, but those who wish to take advantage of the facilities of the securities markets in the United Kingdom should conduct themselves in matters relating to take-overs according to the Code. Those who do not so conduct themselves cannot expect to enjoy those facilities and may find that they are withheld. The responsibilities described herein apply most directly to those who are actively engaged in all aspects of the securities markets, but they are also regarded by the Panel as applying to directors of companies subject to the Code, to persons or groups of persons who seek to gain control (as defined) of such companies, and to all professional advisers (insofar as they advise on the transactions in question), even where they are not directly affiliated to the bodies named in section 1(a). Equally, where persons other than those referred to above issue circulars to shareholders in connection with take-overs the Panel expects the highest standards of care to be observed. The provisions of the Code fall into two categories. On the one hand, the Code enunciates general principles of conduct to be observed in take-over transactions: these general principles are a codification of good standards of commercial behaviour and should have an obvious and universal application. On the other hand, the Code lays down a series of rules, some of which are no more than examples of the application of the general principles whilst others are rules of procedure designed to govern specific forms of take-over.

Some of the general principles, based as they are upon a concept of equity between one shareholder and another, while readily understandable in the City and by those concerned with the securities markets generally, would not easily lend themselves to legislation. The Code is therefore framed in non-technical language (and is, primarily as a measure of self-discipline, administered and enforced by the Panel, a body representative of those using the securities markets and concerned with the observance of good business standards, rather than the enforcement of the law.

As indicated above, the Panel executive is always available to be consulted and where there is doubt this should be done in advance of any action. Taking legal or other professional advice on matters of interpretation under the Code is not an appropriate alternative to obtaining a view or a ruling from the executive."

4

"Self-regulation" is an emotive term. It is also ambiguous. An individual who voluntarily regulates his life in accordance with stated principles, because he believes that this is morally right and also, perhaps, in his own long term interests, or a group of individuals who do so, are practising self-regulation. But it can mean something quite different. It can connote a system whereby a group of people, acting in concert, use their collective power to force themselves and others to comply with a code of conduct of their own devising. This is not necessarily morally wrong or contrary to the public interest, unlawful or even undesirable. But it is very different.

5

The Panel is a self-regulating body in the latter sense. Lacking any authority de jure, it exercises immense power de facto by devising, promulgating, amending and interpreting "The City Code on Take-overs and Mergers," by waiving or modifying the application of the Code in particular circumstances, by investigating and reporting upon alleged breaches of the Code and by the application or threat of sanctions. These sanctions are no less effective because they are applied indirectly and lack a legally enforceable base. Thus, to quote again from the introduction to the City Code:

"If there appears to have been a material breach of the Code, the executive invites the person concerned to appear before the Panel for a hearing. He is informed by letter of the nature of the alleged breach and of the matters which the Director General will present. If any other matters are raised he is allowed to ask for an adjournment. If the Panel finds that there has been a breach, it may have recourse to private reprimand or public censure or, in a more flagrant case, to further action designed to deprive the offender temporarily or permanently of his ability to enjoy the facilities of the securities markets. The Panel may refer certain aspects of a case to the Department of Trade and Industry, The Stock Exchange or other appropriate body. No reprimand, censure or further action will take place without the person concerned having the opportunity to appeal to the Appeal Committee of the Panel."

6

The unspoken assumption, which I do not doubt is a reality, is that the Department of Trade and Industry or, as the case may be, the Stock Exchange or other approriate body would in fact exercise statutory or contractual powers to penalise the transgressors. Thus, for example, rules 22 to 24 of the Rules of The Stock Exchange provide for the severest penalities, up to and including expulsion, for acts of misconduct and by rule 23.1: "Acts of misconduct may consist of any of the following…(g) Any action which has been found by the Panel on Take-overs and Mergers (including where reference has been made to it, the Appeal Committee of the Panel) to have been in breach of The City Code on Take-overs and Mergers. The findings of the Panel, subject to any modification by the Appeal Committee of the Panel, shall not be re-opened in proceedings taken under Rules 22 to 24."

7

The principal issue in this appeal, and only issue which may matter in the longer term, is whether this remarkable body is above the law. Its respectability is beyond question. So is its bona fides. I do not doubt for one moment that it is intended to and does operate in the public interest and that the enormously wide discretion which it arrogates to itself is necessary if it is to function efficiently and effectively. Whilst not wishing to become involved in the political controversy on the relative merits of self-regulation and governmental or statutory regulation, I am content to assume for the purposes of this appeal that self-regulation is preferable in the public interest. But that said, what is to happen if the Panel goes off the rails? Suppose, perish the thought, that it were to use its powers in a way which was manifestly unfair. What then? Mr. Alexander submits that the Panel would lose the support of public opinion in the financial markets and would be unable to continue to operate. Further or alternatively, Parliament could and would intervene. Maybe, but how long would that take and who in the meantime could or would come to the assistance of those who were being oppressed by such conduct?

8

A somewhat similar problem confronted the courts in 1922 when the Council of the Refined Sugar Association, a self-regulatory body for the sugar trade and no less respectable than the Panel, made a rule which purported to preclude any trader from asking a trade arbitrator to state a case for the opinion of the court or from applying to the court for an order that such a case be stated. The matter came before a Court of Appeal...

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