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Table of Contents

  1. Acknowledgments
  2. Chapter one: Defining the constitution
  3. Chapter two: Parliamentary sovereignty
  4. Chapter three: The rule of law and the separation of powers
  5. Chapter four: The royal prerogative
  6. Chapter five: The House of Commons
  7. Chapter six: The House of Lords
  8. Chapter seven: The electoral system
  9. Chapter eight: Parliamentary privilege
  10. Chapter nine: Constitutional conventions
  11. Chapter ten: Local government
  12. Chapter eleven: Parliamentary sovereignty within the European Union
  13. Chapter twelve: The governance of Scotland and Wales
  14. Chapter thirteen: Substantive grounds of judicial review 1: illegality, irrationality and proportionality
  15. Chapter fourteen: Procedural grounds of judicial review
  16. Chapter fifteen: Challenging governmental decisions: the process
    1. Barnard and Others v National Dock Labour Board and Another [1953] 1 All ER 1113
    3. Heywood v Hull Prison Board of Visitors and another [1980] 3 All ER 594
    4. Supreme Court Act 1981
    5. O'Reilly v Mackman and others and other cases [1982] 3 All ER 1124
    6. Wandsworth London Borough Council v Winder [1984] 3 All ER 976
    7. Law v National Greyhound Racing Club Ltd [1983] 3 All ER 300
    8. R v East Berkshire Health Authority, ex parte Walsh [1984] 3 All ER 425
    9. R v Secretary of State for the Home Department, ex parte Benwell [1984] 3 All ER 854
    10. R v Panel on Take-overs and Mergers, ex parte Datafin plc and another (Norton Opax plc and another intervening) [1987] 1 All ER 564
    11. Roy v Kensington and Chelsea and Westminster Family Practitioner Committee [1992] 1 All ER 705
    12. R v Secretary of State for Foreign Affairs, ex parte World Development Movement Ltd [1995] 1 All ER 611
    13. Boddington v British Transport Police [1998] 2 All ER 203
  17. Chapter sixteen: Locus standi
  18. Chapter seventeen: Human rights I: Traditional perspectives
  19. Chapter eighteen: Human rights II: Emergent principles
  20. Chapter nineteen: Human rights III: New substantive grounds of review
  21. Chapter twenty: Human rights IV: The Human Rights Act 1998
  22. Chapter twenty-one: Human rights V: The impact of The Human Rights Act 1998
  23. Chapter twenty-two: Human rights VI: Governmental powers of arrest and detention
  24. Chapter twenty-three: Leaving the European Union

R v Panel on Take-overs and Mergers, ex parte Datafin plc and another (Norton Opax plc and another intervening) [1987] 1 All ER 564

SIR JOHN DONALDSON MR: 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.

The panel is an unincorporated association without legal personality and, so far as can be seen, has only about 12 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. ....

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 Code is.... 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.....

The principal issue in this appeal, and the 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.....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 in which was manifestly unfair.....

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 consisting of Bankes, Atkin and Scrutton LJJ in Czarnikow v Roth Schmidt & Co [1922] All ER Rep 45. Scrutton LJ said at 50):

"In my view to allow English citizens to agree to exclude this safeguard for the administration of the law is contrary to public policy. There must be no Alsatia in England where the King's writ does not run".....

The applicants for relief by way of judicial review are Datafin plc, an English company, and Prudential-Bache Securities Inc of New York. In addition there appear, as interveners, Norton Opax plc and Samuel Montagu & Co Ltd, their merchant bankers and financial advisers, both being English companies. Other members of the cast, albeit not parties to the proceedings, are Greenwell Montagu & Co Ltd, the stockbroking arm of Samuel Montagu. Laurence Prust, another stockbroker, the Kuwait Investment Office (KIO), a major investor in the United Kingdom financial market and McCorquodale plc, an English printing company, which was the target for the rival take-over bids which precipitated the present proceedings.....

On the morning of 25 November 1986 Datafin and Prudential-Bache sought leave from Hodgson J to apply for judicial review of the panel's decision and for consequential relief. The judge refused the application without giving reasons, while indicating that in his view the court had no jurisdiction. The application was renewed to this court that afternoon and we began the hearing at once. In the course of the argument we decided to give leave and further determined to hear the substantive application ourselves. We gave leave because the issue as to jurisdiction seemed to us to be arguable and of some public importance and we retained seisin of the matter with a view to saving time in a situation of considerable urgency....

The jurisdictional issue

As I have said, the panel is a truly remarkable body, performing its function without visible means of legal support. But the operative word is 'visible', although perhaps I should have used the word 'direct'. Invisible or indirect support there is in abundance. Not only is a breach of the code, so found by the panel, ipso facto an act of misconduct by a member of the Stock Exchange, and the same may be true of other bodies represented on the panel, but the admission of shares to the Official List may be withheld in the event of such a breach..... And the matter does not stop there, because in December 1983 the Department of Trade and Industry made a statement explaining why the Licensed Dealers (Conduct of Business) Rules 1983, SI 1983/585, contained no detailed provisions about take-overs. It said:

1.There are now no detailed provisions in these statutory rules about takeovers and the following paragraphs set out the provisions as regards public companies and private companies respectively. 2. As regards public companies (as well as private companies which have had some kind of public involvement in the ten years before the bid) the Department considers it better to rely on the effectiveness and flexibility of the City Code on Takeovers and Mergers....

The picture which emerges is clear. As an act of government it was decided that, in relation to take-overs, there should be a central self-regulatory body which would be supported and sustained by a periphery of statutory powers and penalties wherever non-statutory powers and penalties were insufficient or non-existent or where EEC requirements called for statutory provisions.

No one could have been in the least surprised if the panel had been instituted and operated under the direct authority of statute law, since it operates wholly in the public domain. Its jurisdiction extends throughout the United Kingdom. Its code and rulings apply equally to all who wish to make take-over bids or promote mergers, whether or not they are members of bodies represented on the panel. Its lack of a direct statutory base is a complete anomaly, judged by the experience of other comparable markets world wide....

The issue is thus whether the historic supervisory jurisdiction of the Queen's courts extends to such a body discharging such functions, including some which are quasi-judicial in their nature, as part of such a system. Counsel for the panel submits that it does not. He says that this jurisdiction only extends to bodies whose power is derived from legislation or the exercise of the prerogative. Counsel for the applicants submits that this is too narrow a view and that regard has to be had not only to the source of the body's power, but also to whether it operates as an integral part of a system which has a public law character, is supported by public law in that public law sanctions are applied if its edicts are ignored and performs what might be described as public law functions.....

In fact, given its novelty, the panel fits surprisingly well into the format which this court had in mind in R v Criminal Injuries Compensation Board. It is without doubt performing a public duty and an important one. This is clear from the expressed willingness of the Secretary of State for Trade and Industry to limit legislation in the field of take-overs and mergers and to use the panel as the centrepiece of his regulation of that market. The rights of citizens are indirectly affected by its decisions, some, but by no means all of whom, may in a technical sense be said to have assented to this situation, eg the members of the Stock Exchange. At least in its determination of whether there has been a breach of the code, it has a duty to act judicially and it asserts that its raison d'Ítre is to do equity between one shareholder and another. Its source of power is only partly based on moral persuasion and the assent of institutions and their members, the bottom line being the statutory powers exercised by the Department of Trade and Industry and the Bank of England. In this context I should be very disappointed if the courts could not recognise the realities of executive power and allowed their vision to be clouded by the subtlety and sometimes complexity of the way in which it can be exerted.

Given that it is really unthinkable that, in the absence of legislation such as affects trade unions, the panel should go on its way cocooned from the attention of the courts, in defence of the citizenry, we sought to investigate whether it could conveniently be controlled by established forms of private law, eg torts such as actionable combinations in restraint of trade, and, to this end, pressed counsel for the applicants to draft a writ. Suffice it to say that the result was wholly unconvincing and, not surprisingly, counsel for the panel did not admit that it would be in the least effective.....

The practical issue

Counsel for the panel waxed eloquent on the disastrous consequences of the court having and exercising jurisdiction to review the decisions of the panel and his submissions deserved, and have received, very serious consideration......

I think that it is important that all who are concerned with take-over bids should have well in mind a very special feature of public law decisions, such as those of the panel, namely that however wrong they may be, however lacking in jurisdiction they may be, they subsist and remain fully effective unless and until they are set aside by a court of competent jurisdiction. Furthermore, the court has an ultimate discretion whether to set them aside and may refuse to do so in the public interest, notwithstanding that it holds and declares the decision to have been made ultra vires (see eg R v Monopolies and Mergers Commission, ex p Argyll Group plc [1986] 2 All ER 257, [1986] 1 WLR 763). That case also illustrates the awareness of the court of the special needs of the financial markets for speed on the part of decision-makers and for being able to rely on those decision as a sure basis for dealing in the market. It further illustrates an awareness that such decisions affect a very wide public which will not be parties to the dispute and that their interests have to be taken into account as much as those of the immediate disputants....

Consistently with its character as the controlling body for the self-regulation of takeovers and mergers, the panel combines the functions of legislator, court interpreting the panel's legislation, consultant and court investigating and imposing penalties in respect of alleged breaches of the code. As a legislator it sets out to lay down general principles, on the lines of EEC legislation, rather than specific prohibitions which those who are concerned in take-over bids and mergers can study with a view to detecting and exploiting loopholes.

Against that background, there is little scope for complaint that the panel has promulgated rules which are ultra vires, provided only that they do not clearly violate the principle proclaimed by the panel of being based on the concept of doing equity between one shareholder and another. This is a somewhat unlikely eventuality.

When it comes to interpreting its own rules, it must clearly be given considerable latitude both because, as legislator, it could properly alter them at any time and because of the form which the rules take, ie laying down principles to be applied in spirit as much as in letter in specific situations. Where there might be a legitimate cause for complaint and for the intervention of the court would be if the interpretation were so far removed from the natural and ordinary meaning of the words of the rules that an ordinary user of the market could reasonably be misled...

It is not for a court exercising a judicial review jurisdiction to substitute itself for the fact-finding tribunal....The only circumstances in which I would anticipate the use of the remedies of certiorari and mandamus would be in the event, which I hope is unthinkable, of the panel acting in breach of the rules of natural justice, in other words, unfairly.....

The reasons for rejecting this application

There was some failure on the part of the applicants to appreciate, or at least to act in recognition of the fact, that an application for judicial review is not an appeal. The panel and not the court is the body charged with the duty of evaluating the evidence and finding the facts. The role of the court is wholly different.....

The fact that the panel's conclusion might at first have appeared surprising to someone who was not in day-to-day contact with the financial markets and who had heard none of the evidence would not have begun to justify the grant of leave to apply.