We come to the effect on contractual restrictions. We query the use of the phrase
“75 per cent. in value of all the voting shares”
in subsection (2)(b) and (d)(ii). That is a change from the directive, which refers to
“75 per cent...of the capital carrying voting rights”.
The Government resisted using the directive’s wording in the other place, saying that their formulation was consistent with the wording in the Companies Act 1985. In addition, there was a debate in the Lords about whether “in value” meant nominal value or market value. Originally, Lord Goldsmith confirmed that it meant nominal value, but that was challenged by Lord Hodgson. The Government seem intent on leaving it to the courts to interpret what is meant by that phrase, but our point remains: why not simply clarify the issue now?
The clause contains some obscurities, and I should like the Solicitor-General to elucidate another one. Subsection (6) refers to compensation for people whose agreements are broken as a result of the clause, but will it apply to people who make such agreements after the Bill has come into force? It could be argued that someone who made such an agreement after the Bill had come into force did so in the knowledge that the law would allow it to broken and that they should not, therefore, be allowed the benefit of the compensation clause. If the Solicitor-General could explain how the provision will apply to late-coming agreers, I would be grateful.
The directive uses a European style of phraseology but we have a different way of describing things in English law. There is a choice between the two, and we have chosen to interpret the directive using conventional English company law terminology. We could have copied the text from the directive or used what is called the elaboration approach, which involves using UK terminology to achieve exactly the same thing. We believe that we have achieved exactly the same thing, and that the wording that we used is better than the phraseology used in the directive.
The courts would have to consider with great care how the UK’s directive was described. Greater clarity would not be added if an expression that does not mean much in itself were used. The provision in the Bill would have to be interpreted against the background of European legislation. We do not know what the European Court of Justice, for example, would make of capital carrying voting rights or 75 per cent. of them.
The point is that we would avoid exactly that problem by more closely following the directive. If a case goes to the European court, the judge would make a decision that would apply to all countries. Instead, we will have something separate that will stick out and possibly be questioned at a later stage.
I do not think that we would be better off taking the hon. Gentleman’s view. Arguably, his approach might be better before the European court, but it probably would not be better before a UK court. Our courts are used to the way that things are described in UK legislation. If we start changing it, they will want to know why. They would then have to consider other interpretations of the phraseology in other parts of European legislation and in other parts of UK legislation in which we have used European wording, and we would end up back in the somewhat confused position that the hon. Gentleman seeks to avoid.
We are better off elaborating—that is the expression—the directive wording to bring it in line with UK company law, and to use words with which the UK courts are familiar. They can then interpret the cases. If cases ever get to the European Court of Justice, perhaps at that point the hon. Gentleman’s suggestion would apply, but most cases will be decided in courts in this country. Therefore, it is better that we use wording that is appropriate to this country.
As far as the comments of the hon. Member for Cambridge (David Howarth) are concerned, the clause provides that agreements entered into between shareholders of the company on or after 21 April 2004—the date on which the takeovers directive was adopted—and agreements entered into between a shareholder and the company before as well as on or after that date, are invalid in so far as they impose any of the restrictions set out in subsection (2).