The Takeover Panel - membership changes and the Human Rights Act 1998

United Kingdom
The Takeover Panel (the "Panel") recently amended the Introduction to The City Code on Takeovers and Mergers (the "Code"). These amendments reflect certain changes to the membership of the Panel and in the procedures of the Panel itself.

Panel Membership

Following its incorporation as a public company, the London Stock Exchange is no longer a member of the Panel. The Association of Private Client Investment Managers and Stockbrokers and the Fund Managers' Association have joined the Panel and the Securities Trading Committee of the London Investment Banking Association has been given separate representation.

Panel Procedures

The changes to Panel procedures in the most part are driven by the requirements of the Human Rights Act 1998 (the "HRA") which came into force in England and Wales on 2 October 2000.

The HRA effectively incorporates into domestic law almost all of the rights and freedoms contained in the European Convention on Human Rights (the "Convention").

At the centre of the HRA are "public authorities" which must not act in a manner that is incompatible with Convention rights (HRA, section 6). These are the rights and fundamental freedoms specified in section 1, HRA. Although it is not clear from the legislation whether or not the Panel is a "public authority" under the HRA, the Code now says that the Panel operates in accordance with the requirements of the HRA. It appears therefore that the Panel, without expressly accepting that as a matter of law it is a "public authority", will operate, for HRA purposes, on the basis that it is a "public authority" and seeks to act, and discharge its functions, in a manner compatible with Convention rights. This has necessitated amendments to the Introduction to the Code to reflect the HRA.

Aspects of the HRA (in addition to section 6 mentioned above) which are likely to be of greatest relevance to the operations and procedures of the Panel, include:

  • Where a public authority infringes the Convention rights of a private party, that party may bring proceedings against the authority in an appropriate court or tribunal. In addition that party can rely on its Convention rights in any proceedings brought against him by the authority (HRA, section 7);
  • So far as it is possible to do so, primary legislation and subordinate legislation must be read and given effect to in a manner that is compatible with Convention rights (HRA, section 3); and
  • Any court or tribunal determining a question that has arisen in connection with a Convention right will be bound to comply with the "right to a fair trial". It must also take into account the case law of the European Court of Human Rights and certain other Strasbourg bodies (HRA, section 2).

Particular changes to the Introduction to the Code include:

Code Committee

The Panel has established a Code Committee to keep under review and, where appropriate, amend the substantive provisions of the Code and The Rules Governing Substantial Acquisitions of Shares (the "SARs"). The Code states that the Panel may delegate its rule making function concerning amendments to the Code and the SARs to the Code Committee whose members would not normally participate in Panel hearings. There is thus a separation of the rule making and tribunal functions. The Code Committee will normally consult publicly on any proposed amendments to the Code. Historically the Panel tended to seek views on proposed alterations on a much more informal basis.

Conditional and unconditional rulings

Parties can obtain rulings from the Panel Executive (the body that is responsible for the general administration of the Code) on a conditional (ex parte) or unconditional basis. If the Executive has not heard the views of all the parties involved (for example because that is the preference of the applicant) it may only give a conditional ruling (on an ex parte basis). A conditional ruling may be varied or set aside when any views of the other parties have been heard. Obviously, if the Executive is able to hear the views of the other parties involved it may give an unconditional ruling. As a practical matter, it is going to be very important that a party is made aware if a ruling is conditional and that there is a possibility of it being set aside. A party can then take account of this risk in any decision it makes as to whether to proceed.

Appeals to the Panel

If a party or his adviser wishes to contest a ruling of the Executive he has the right to request that the matter be re-considered by the Panel. Previously the Code gave such person the right to ask for the matter to be re-considered by the Panel). The Panel (or its Chairman) retains a discretion to deal summarily with frivolous or vexatious appeals.

Panel proceedings

The Panel will allow parties to be represented at Panel hearings by legal advisers. Although not expressly prohibited, the Code had said that the Panel’s normal practice was not to allow presentation of a case by lawyers.

Proceedings before the Panel will usually remain private unless the Chairman, at his discretion, directs otherwise. However, parties are now entitled to request that the hearing be held in public and such request will be ruled upon by the Chairman (or at his discretion the Panel itself). If a hearing is held in public, the Chairman has the discretion to direct that the Panel hears part or parts of the hearing in private. It will be interesting to see whether any parties do request a public hearing (and if they do how this is handled by the Panel). In the case of disciplinary hearings, it is difficult to envisage that many people will elect to have their dirty linen aired in public. However, in the context of a takeover bid a party may in certain circumstances consider that a public hearing would be to his tactical advantage. Equally, the possibility of a public hearing being requested by another party (and granted) may become a factor in considering whether to request a Panel hearing in the first place.

The Chairman has the power to deal with, and resolve, possible conflicts of interest of any members of the Panel attending a hearing. The Chairman has the same power in respect of any other objections raised by the parties.

The proceedings will be tape recorded (for the administrative assistance of the Panel only) and a transcript normally made. This transcript can be given to the parties on request subject to conditions, for example, as to its confidentiality and use.

The requirement for the Panel to announce its decision to the parties immediately as informal guidance has been removed. The Panel will provide its reasoned decision to the parties in writing as soon as practicable after the hearing, followed by a public statement. The Panel may make a separate public statement of its decision (without providing reasons) in advance of the publication of its reasoned decision.

The Appeal Committee

For those cases where the Code does not expressly provide an automatic right of appeal of a Panel decision to the Appeal Committee, the leave of the Panel is required. The Chairman (or, at the discretion of the Chairman, the Panel) may now stipulate the time for making applications for leave to appeal to the Appeal Committee. If no time is stipulated, applications must be made within two business days of receiving the reasoned decision. The application is determined by the Chairman (or, at the discretion of the Chairman, by the Panel itself). Leave to appeal may be granted, amongst other things, if the Chairman (or the Panel if it is hearing the application) considers that the case is one of general importance or one which for some other special reason should be considered by the Appeal Committee.

Notice of appeal must be given within the time stipulated on the grant of leave to appeal. In the absence of such a stipulation, notice must be given within two business days of the grant of leave (where leave is required). In other cases notice must be given within two business days of receipt of the reasoned decision.

The Panel will no longer normally suspend publication of the reasoned decision whilst the decision is being taken whether or not to give notice to appeal although it may still choose to do so. Whether any suspension will continue if there is an appeal to the Appeal Committee is at the Chairman’s discretion.

The quorum for the Appeal Committee is three. The restrictions on when the Appeal Committee can hear new evidence have been removed although the Code still says that the Appeal Committee does not normally hear new evidence.

For further information please see Takeover Panel Statement 2001/3 or contact Nick Callister Radcliffe (who was seconded to the Takeover Panel for 2 years up to September 2000) on 44 (0)20 7367 2394 or by e-mail: