From: John Ewing
Constitutional Policy/ES
22 June 1999
PS/Secretary of State
Copy to:
PS/Lord Sewel
PS/Lord MacDonald
PS/Mr MacDonald
PS/Perm Sec
PS/ES
Mr I Gordon
Mr Kelly, ES
Mr Ferguson, LD
Mrs Brannan, HD
Mr Rogers, ES
Mr Olszewski
LEGISLATION AT WESTMINSTER
ABOUT DEVOLVED
MATTERS
Purpose
1.
To let the Secretary of State see the motion which is to be debated tomorrow in th
Scottish Parliament seeking its consent to 3 Bills with impacts in devolved areas, and th
memorandum which has been supplied to MSPs describing the content of the Bills.
Timing
2.
Urgent. The Secretary of State will wish to see this material in advance of the debat
timetabled for 4.30 pm tomorrow in the Scottish Parliament.
)
Background
, .
3.
As Ministers are aware, both the UK Government and the Scottish Executive hav
stated their expectation that a convention will be established that the Westminster Parliamen
will not normally legislate about devolved matters without the consent of the Scottis
Parliament.
The First Minister's statement in the Scottish Parliament on 9 June alerted it to
number of Bills already under consideration in the UK Parliarp.ent, and to the intention tha
the Scottish Parliament would have the opportunity to debate the Food Standards Bill. Tha
debate is scheduled for tomorrow afternoon.
Immediately
afterwards,
there is to be
half-hour debate on 3 further Bills which have either recently been introduced in the
Parliament or may be introduced before the Westminster recess. The Bills are the Electroni
Communication
Bill, the Limited Liability Partnerships Bill and the Financial Services an
Markets Bill.
A copy of the motion is attached at Annex A. Annex B is a memorand
describing the Bills
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4.
The impacts of each ofthese Bills in devolved areas are much smaller than L.;'atof th
Food Standards Bill. The first 2 will, however, confer powers for subordinate legislation (t
be made by the Scottish Ministers) to alter Scots law in devolved areas. The third will hav
an impact upon the legislative competence of the Scottish Parliament in that it create~ a ne.
MRK3590
1
rule of Scots private law which is special to a reserved matter. Such rules are protected fr m
modification by the Scottish Parliament in exercising its across-the-board
competence
to
modify general rule of Scots private law.
5.
While these are essentially technical measures which the Parliament should not ne d
to trouble itself with, the political sensitivities within the Parliament means that there h
been
no choice on this occasion but to allow a short debate.
However,
we exp ct
Mr Andrew Mackay to make it clear tomorrow that the Scottish Executive's
view is that it
will not in future be necessary to have a debate in the Scottish Parliament about Westmins
r
Bills with relatively
minor impacts upon devolved
matters.
What we envisage
is a
streamlined procedure whereby the Scottish Ministers will lodge motions seeking conse t
which will usually be passed without debate.
6.
As for what the Scottish Parliament is asked to consent to, while it can be argued th t
the Parliament should always have in fr6nt of it the ~aft legislation containing the devolv d
provisions, in practice it is unrealistic to expect the UK Government always to publish Bil s
with minor impacts in devolved areas before they are introduced at Westminster.
Instead,
e
envisage the Scottish Parliament
being provided
with short memoranda
describing
e
devolved provisions along the lines ofthose which have been supplied for these 3 Bills.
Future Arrangements
7.
In the light of this experience we will be liaising with Cabinet Office on arrangemen s
for handling such Bills in the future both in the Scottish Parliament and at Westminster.
Recommendation
8.
I invite the Secretary of State to note the terms of the motion which the Scottis
Parliament will debate tomorrow about 3 UK. Bills with minor impacts in devolved areas, an
of the memorandum which has been supplied to notify the Parliament of those Bills.
\
-/
,.
\
JOHN EWING
Executive Secretariat
Rm 047
SAH
sa 4 0357
22 June 1999
MRK3590
2
MEMORANDUM TO BE PLACED IN SCOTTISH PARLIAMENT
DOCUMEN
CENTRE
LEGISLATION IN THE UK PARLIAMENT:
FINANCIAL SERVICES & MARKETS BILL
ELECTRONIC COMMUNICATIONS BILL
LIMITED LIABILITY PARTNERSHIPS BILL
Introduction
1.
As indicated by the First Minister on 9 June, it is expected that a convention will b
established whereby the UK Parliament will not nonnally legislate about devolved matter
without the consent of the Scottish Parliament.
2..
This memorandum describes the above 3 Bills, which have been or may be introduce
before the Westminster summer recess 1999. The Financial Services and Markets Bill w
introduced on 17 June.
The Electronic Communications
Bill and the Limited Liabili
Partnerships Bill may be introduced later in June.
3.
These Bills are substantially concerned with reserved matters but either have som
impact on devolved matters or to a limited extent deal with matters which would be withi
the devolved competence of the Scottish Parliament.
A motion to the effect that the Scottis
Parliament notes with approval the proposal that the UK Parliament should enact the abov
Bills has been put down by the First Minister and will be debated on Wednesday 23 June a
4.3Opm for 30 minutes.
The Bills
4.
The Financial Services and Markets Bill does not make any provision which would
have been within the competence of the Scottish Parliament but it does have an impact on
Scots bankruptcy law.
The basic purpose of the Bill is to set up a single regulator for
)
Financial Services and Markets, the Financial Services Authority (FSA). The FSA would be
. given power to petition for the bankruptcy of a sole trader where he appears to be unable to
pay a regulated activity debt (ie relating to the provision of financial services), or appears to
have no reasonable prospect of being able to pay such a debt. This would enable the FSA to
bring a trader's activities to an early end, so as to minimise the loss, which might otherwise be
sustained by consumers doing business with him. In Scots law nonnally only a creditor or a
creditor under a trust deed or the debtor' himself can petition
for sequestration
of an
individuaL
The Bill would therefore create a precedent in Scots bankruptcy law, since the
FSA would not itself be a creditor, but would, as it were, be acting on behalf of consumers
who might have sustained a loss through the activities of an individual trader.
5.
A Bill on Electronic Communications is planned for introduction shortly.
This does
not in itself contain any devolved provisions.
However it provides that existing legislation
may be modified by order, so. as to make provision
for electronic
signatures
and the
conclusion of contracts by elec1!0nic means.
The Bill provides that in Scotland, an order
introducing a complete package of measures in respect of reserved matters can be put in place
by ~ Scottish Minister with the consent of a UK Minister. This would not be possible without
UK legislation to make the necessarY provision.
HOMEDOCS\WESTLEG03.DOC
1.
6.
Thirdly, UK Ministers are hopeful of introducing before the end of the Westminster
session a Bill on Limited Liability Partnerships but this has to find time against competing
priorities. This Bill would create a new form of business association, a "limited liability
partnership" which would be a body corporate in which the liability of the partners would be
limited to the extent of their stake in the business. It does not directly contain provision on
devolved matters. However it contains a power for a Scottish Minister to make regulations
for the process of winding up of limited liability partnerships in Scotland. This is because the
law on the process of the winding up of business associations is devolved.
7.
These Bills represent desirable measures to secure a level playing field for business
and adequate consumer protection throughout Great Britain.
The impact they have on
devolved matters is consequential on these primary purposes which are reserved matters. For
2 of the Bills, implementation will require statutory instruments to be made by Scottish
Ministers, in one case with the consent of the appropriate UK Minister. The consent is
necessary because the exercise of the power would relate t~ reserved matters. It is clearly
)
sensible for the UK Parliament to establish a single regime from which Scottish business
interests and consumers can also benefit.
8.
More detail on the purposes of the Bills is given in the Appendices.
HOMEDOCS\WESTLEG03.DOC
2.
APPENDIX 1
FINANCIAL SERVICES & MARKETS BILL
Description of Bill
1.
This Bill will set up a single regulatory framework for the UK. financial· services
industry and a single statutory regulator, the Financial Services Authority (FSA).
The FSA
already exists but it only regulates investment business and banking.
The reconstituted FSA
will regulate all kinds of financial services including insurance and will have enhanced
powers.
The Bill was the subject of consultation in July 1998 and a progress report was
published in March 1999 by HM Treasury. The proposals were generally well received.
Impact on devolved matters
2.
At present the FSA is able to petition for the winding up of companies (including
partnerships) which are authorised to carry out financial services business.
However, it does
not have an equivalent power to petition for the bankruptcy of a sole trader carrying out a
financial services business.
These sole traders usually trade as Independent
Financial
Advisers.
Many such sole traders are not incorporated under the Companies Act and are
effectively
doing business
as private individuals.
A recent
case in Northern
Ireland
highlighted this gap in the law. Consequently, it is proposed that the FSA should be given a
power to petition for bankruptcy of an individual.
3.
This would create a precedent in Scotland.
Under Scots bankruptcy
law only a
creditor, a trustee under a trust deed, or an insolvent individual himself, may petition for
sequestration.
The reason for sequestration is to ensure that all creditors are treated fairly and
receive a share of the debts owed to them. The FSA would be given a power to petition for
sequestration even although it is not a creditor of the individual in question.
The underlying
reasoning is that in the case of an investment adviser who appears unlikely to be able to
satisfy his obligations to his clients, there may be many creditors who have invested money
)
with the individual in good faith, but they may not have the means or knowledge to petition
for that person's
sequestration.
Therefore the FSA as it were stands proxy for all the
individual creditors and safeguards their position by petitioning
for sequestration
on their
behalf. The Scottish Parliament could not itself pass legislation to give the FSA this power to
petition for sequestration, as regulation of financial services is a reserved matter.
4.
The Bill would also remove the need fot the self-regulating
legal professions
in
Scotland to make provision
for regulating
the provision
of financial
services
by their
members.
Self-regulation of the legal professions is a devolved matter, but regulation of the
provision of financial services is a reserved matter. Consideration is currently taking place on
whether the Bill requires any consequential changes to the Solicitors (Scotland) Act 1980 and
if so, what the appropriate procedures would be.
,~ ~..
HOMEDOCS\ WESTLEG03.DOC
3.
APPENDIX 2
ELECTRONIC COMMUNICATIONS
BILL
Description· of Bill
1.
Electronic Commerce is'a new way of marketing goods and services, using electronic
means.
This involves
buying
and selling goods and services,
money
transfers,
and
advertising,
and
also
includes
transactions.
with
Government.
The
Electronic
Communications
Bill would include powers to create a statutory voluntary approvals regime
for bodies offering electronic signature and confidentiality services.
These services enable
people to check who has signed an electronic message, that it has not been tampered with,
and that it has been kept confidential ..
2.
The Bill would also ensure, as far as possible, that the law.is technology neutral in its
application. It will clarify the position regarding legal recognition of electronic signatures and
begin the process of updating the statute book so that electronic means can be used as well as
the traditional pen and paper.
Impact on devolved matters
3.
The Bill is largely concerned with reserved matters, such as electronic cryptography
and telecommunications.
To give it effect generally may require amendments to the law on
what constitutes a legally valid document and legally valid evidence of, say, a contract.
It is
not intended that all such amendments should be made in primary legislation.
Rather there
will be a provision giving Ministers powers (by statutory instrument)
to modify existing
legislation for the purpose of authorising, facilitating or encouraging the use of electronic
commerce or electronic storage.
The Bill will provide that for Scotland, a Scottish Minister
may make any order putting in place a complete package of rules including rules in respect
of reserved matters.
Because the rules will cover reserved matters this will require the
consent of the appropriate UK Minister.
The Scottish Parliament could have made some
changes to devolved matters, for example, to the Requirements
of Writing (Scotland) Act
1995, which provides for the execution of documents with signatures,
but not for the
purposes of authorising or facilitating electronic commerce as such. Nor could the Scottish
Parliament legislate on matters relating to communication
systems.
The proposal that a
Scottish Minister should be able to introduce a complete package of such changes covering
reserved matters, albeit with consent, will give the Scottish Parliament much more control
. over the implementation of the Bill in Scotland than it would otherwise have had.
4.
To omit Scotland from the Bill would be to disadvantage
Scottish businesses
and
consumers and delay the devel~pment of electronic commerce in Scotland.
It makes sense
for there to be a single GB regime on these matters.
HOMEDOCS\ WESTLEG03.DOC
4.
APPENDIX 3
LIMITED LIABILITY PARTNERSHIPS BILL
Description of Bill
1.
The DTI proposes to create a new form of corporate business association to be known
as a "limited liability partnership" (LLP) and provides a regulation-making power to make
other provision relating to the winding up of LLP's. The Bill to give effect to this will apply
to England, Wales and Scotland. A separate Northern Ireland Code would be needed to
create LLPs in Northern Ireland. This would fall within the legislative competence of the
Northern Ireland Assembly.
2.
The m~in purpose of the Bill is the creation of a new form of business association.
That would be a reserved matter under the terms of Head C, Section C 1 of schedule 5 to the
Scotland Act 1998. However, Section C2 (Insolvency) provides an exception from the
reservation in relation to the process of winding up business associations.
3.
An LLP will be a legal entity distinct from its members with the capacity of a legal
person, including the capacity to enter into contracts. It is anticipated that business will
normally be transacted with the firm as principal, not the members. The proposals would
limit the members' exposure to the extent of their stake in the business. Members would
remain personally liable for their own acts.
4.
As well as providing for the formation of LLPs, the Bill sets out registration
requirements. It also amends the relevant taxation legislation. In addition the Bill contains
power to make regulations in the area of LLPs - there is a power to apply certain parts of the
Companies Act 1985 and a duty to apply certain parts of the Insolvency Act 1986.
Impact on devolved matters
5.
The Bill contains power to apply the Insolvency Act 1986 to LLPs. This means that a
Minister can by statutory instrument apply the relevant provisions of the Insolvency Act to
the procedures for winding up a LLP. For LLPs in England and Wales, this will be done by
the Secretary of State for Trade and Industry.
6.
Because the law on the process of winding up business associations is devolved, it
will be for the Scottish Ministers to make regulations on that in respect of Scottish LLP's.
HOMEDOCS\WESTLEG03.DOC
5.
From:
Thomson KAL (Ken)
Sent:
27 June 1999 22:06
To:
Ewing JA (John)
Cc:
Deputy First Minister (Minister for Justice); Minister for Parliament; PS/Lord Ad
Minister for Finance; PS/Perm See; PS/Executive Secretariat; Henderson RM (
. Jamieson JL (lain); Wildgoose JR (James); Brannan MH (Micheline); Walford I
Kelly OD (Owen); Rogers DA (David); Rafferty JA (John); Whitton D (David); Fi
(Brian)
Subject:
Westminster bills about devolved matters: operation of convention
Mr Ewing
Copy as above
WESTMIN&TER BILLS ABOUT DEVOLVED MATTERS: OPERATION OF CONVENT ON
,
.)rther
to my minute of 23' June, this is to confinn that the First Minister is content for you to deve op the
proposals in your minute of 21 June.
He commented on one point, namely the proposal at paragraph 19.3 of your minute that the executi e
should supply a supplementary memorandum, and lodge a further motion, should there be a change 0 the
legislation during its passage which materially affects the extent to which it impacts on devolved m tters.
While he is content in principle with the offer of a mechanism to infonn the Parliament in the event
f
changes to legislation already introduced and consented to, he thinks there should be further discuss on of
the detail, and in particular he is concerned that the agreed definition of material change should not
e such
as to produce a very large number of such memoranda and motions.
K A L THOMSON
PSlFirst Minister
26 June 1999
1
Document Outline
