Enterprise Bill

– in the House of Lords at 12:00 am on 15th October 2002.

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Consideration of amendments on Report resumed.

Photo of Lord Kingsland Lord Kingsland Conservative 8:15 pm, 15th October 2002

moved Amendment No. 28:

After Clause 16, insert the following new clause—

"TRIBUNAL: REGULATIONS

(1) The Lord Chancellor and the Secretary of State may together make regulations—

(a) empowering the courts to transfer to the Tribunal for determination by it any issue arising in any civil proceedings the determination of which depends on whether provisions of Chapter I or II of the 1998 Act or Article 81 or 82 of the Treaty have been infringed where, in the opinion of the court making the transfer, the transfer would be conducive to the efficient conduct of the proceedings;

(b) making any rules that the Lord Chancellor and the Secretary of State may deem to be appropriate as ancillary to the power to make such transfers or to be reasonably required in connection therewith and in particular, but without prejudice to the generality of the foregoing, to the effect that—

(i) on making such a transfer, the court making the transfer may state facts that the Tribunal shall then treat as established for the purposes of determining the issues transferred to it;

(ii) after having made its determination, the Tribunal shall remit the matter to the court that made the transfer to it, declaring the determination of that issue by the Tribunal, which, subject to any clarification or amplification by the Tribunal of its determination that may be requested by the court that made the transfer, shall be then treated as a determination of that issue by that court;

(iii) enabling courts that have made, or have in contemplation the making of, such transfers and the Tribunal to co-operate together in any way that they deem to be appropriate to enable issues arising in the proceedings before them to be determined as efficiently as possible.

(2) The Lord Chancellor may appoint as president and as chairman of the Tribunal judges of any of the courts provided that, before appointing a judge of the Court of Session or sheriff courts under this subsection, the Lord Chancellor shall first consult the Lord President of the Court of Session.

(3) In this section references to "the courts" are to the High Court of Justice and the county courts in England and Wales and Northern Ireland, and the Court of Session and the sheriff courts in Scotland.

(4) The power to make regulations under this section is exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament.""

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, some of you may recall from our consideration in Committee that what is now Amendment No. 28 sought to grant the civil courts the power to transfer to the Competition Appeal Tribunal competition issues that arise in private law claims based on alleged breaches of European Community and national competition laws.

The noble Lord, Lord McIntosh of Haringey, I believe, agreed to give consideration to the content of this amendment during the summer Recess. He obviously reflected long and hard, because it was not until 9th October that I received the result of his deliberations. I think that I can do no better than to quote from the communication that I received. The letter was in fact signed by the noble Lord, Lord Sainsbury of Turville, whom I am delighted to see on the government Benches today. It states:

"We do not see the practical need for such a power. The effect of the Competition Act 1998 regime and, in due course, 'modernisation' on the number of Article 81 and 82-related cases heard in the courts is uncertain. We are confident that, where such cases arise, the courts will be able to deal efficiently with them. It is the role of the courts to build up the specialist body of law in a particular area. It is not necessary to create a specialist body or court on each occasion that something new and complex arises. Judges, particularly those in the High Court, where such cases could expect to be heard, already have to weigh technical evidence, including that relating to economic effects, presented by experts in a variety of cases. Economic evidence related to the consideration of Article 81(3), which has been highlighted as a particularly complex area, could be handled in the same way.

"It is important to bear in mind, too, that, under the regulations being developed as part of the 'modernisation project', the competition authorities of the Member States will be able to submit written observations to the national courts on issues relating to the application of Article 81 and 82. With the permission of the court in question, they will also be able to submit oral observations to the courts. For these reasons, we cannot support an amendment along the lines suggested".

I would like to thank the Minister for giving this matter such careful consideration. However, I have to express considerable surprise at his conclusion. The European Court of Justice itself, sitting in Luxembourg, has decided that competition matters can be satisfactorily dealt with only by a specialist court. That is why the Court of First Instance was established.

The Court of Justice recognises that it is only by the concentrated and sustained development of skills by European judges that the jurisprudence on competition law will properly develop.

I should have thought that that lesson would not have been lost on the Minister with regard to our own judicial system. Indeed, there are many precedents for it in the High Court. The emergence of the commercial court is a classic illustration of how it was necessary to develop a specialist part of the High Court to deal with a particular type of case. Equally, in more recent times, it has been found appropriate to establish an employment appeals tribunal—another specialist branch of the High Court—to deal with employment matters.

Competition cases require an intimate knowledge of complicated national and international economic law. Given the wholly appropriate development of careers on the High Court bench, I see no prospect of any individual judge, in the course of his time at that level, developing anything like the necessary skills to handle complicated competition cases.

I therefore urge the Minister to reflect again on the conclusions that he has reached and set out so starkly in his letter to me; otherwise, the increasing momentum of domestically generated competition cases and the new approach of devolving European competition cases on the national court systems of the European Community will, together, result in a severe gap between the demands of the market for judicial guidance and the capacity of our judges to provide it. I beg to move.

Photo of Lord Razzall Lord Razzall Liberal Democrat

My Lords, I support the comments of the noble Lord, Lord Kingsland. I believe that the amendment he is moving is the same as that which I moved in Committee. We clearly are both in thrall to Sir Jeremy Lever QC who is, of course, the author of the amendment.

I do not want to repeat the remarks made by the noble Lord, Lord Kingsland, with all of which I agree. However, the fundamental issue on which he perhaps did not touch is that in producing the amendment we look forward to a Competition Act regime under which significant powers that are currently vested in Brussels are devolved to the United Kingdom. I believe that it is common ground on all sides of the House, first, that that is a likely outcome—namely, that many competition decisions that are currently determined in Brussels will be devolved to the United Kingdom authorities—and, secondly, that that is a desirable outcome. I believe that noble Lords on all sides of the House share that view. The concern that is reflected in the amendment is that when that happens—all the indications are that it will happen soon—and if the Minister is not prepared to move on this issue, in due course either his noble and learned friend the Lord Chancellor will be forced to alter the pattern of appointment of judges or he will have to produce primary legislation to deal with this point.

Judges are in danger of being asked to determine issues they are not really equipped to deal with as they do not have expertise in competition law. They will be asked to deal with issues that they are not competent to deal with. The tribunal will be asked to deal with issues with which it is not competent to deal; that is, the whole damages issue. There is no one better than any High Court judge to determine a damages issue but there is no one less equipped than a High Court judge to determine the complex issues of economics, law and fact which are bread and butter to the experts on competition law.

I have no pride of authorship of the amendment, as I have indicated. The amendment was drafted by Sir Jeremy Lever QC. He lobbied the noble Lord, Lord Kingsland, myself and, no doubt, the Minister heavily on the amendment about which he feels strongly. Sir Jeremy predicts that if this amendment or something like it is not enshrined in the legislation, either the Minister in due course will have to introduce further primary legislation or his noble and learned friend the Lord Chancellor will have to alter the pattern of recruitment of High Court judges. For that reason I support the amendment.

Photo of Lord Borrie Lord Borrie Labour

My Lords, I have no doubt at all that in the enforcement of competition law private actions for damages have a useful role to play in the public interest alongside the enforcement role of the Office of Fair Trading and the European Commission. The OFT and the European Commission simply do not have limitless resources and are bound to have to prioritise as regards which cases they take up. I believe that that point is probably generally agreed.

The important question raised by the amendment, as by that proposed in Committee, is what is the best body to determine, when an action for damages is brought, first, whether there has been an infringement of competition law, UK or EU, and, secondly, if there has been such a breach, who should determine and quantify the amount of damages? The question of whether there has been a breach of competition law is generally a mixed issue of law, economics and fact, as the noble Lord, Lord Razzall, explained, which the mixed membership of the Competition Appeal Tribunal is most appropriate to determine. However, as regards the question of who is most appropriate to determine damages, that is a typical issue for a High Court judge sitting alone; hence the proposals for the possibility of transfer—I interpret part of the amendment as a provision for retransfer as well—between the High Court judge and the Competition Appeal Tribunal.

At first sight—I believe that my noble friend Lord McIntosh made a similar comment in Committee—it is odd that a body entitled the Competition Appeal Tribunal should have the role of deciding at first instance, without anyone else having decided the matter before, whether there has been a breach of competition law. But the role of the Competition Appeal Tribunal under the Government's own Clause 17 is not an appeal role. Clause 17 as it stands gives the Competition Appeal Tribunal jurisdiction to handle at first instance private claims for damages provided that there has already been a public law determination of a relevant infringement. That is not an appeal; it is intended to be a decision—if Clause 17 comes into effect—of a court of first instance.

I have a great deal of sympathy with the amendment proposed by the party opposite which emanates, as has been said, from Sir Jeremy Lever, a fellow of All Souls, whom I have known for at least 30 years as being pre-eminent in UK and EU competition law and who has obviously given a great deal of thought to this matter. I submit that the proposed subsection (2) of the amendment on appointments is probably not needed as my noble friend Lord McIntosh clarified in Committee that the appointment of High Court judges to the Competition Appeal Tribunal can be made under the present legislation and the Bill as it stands. If there were a vote, I would not enter the Lobby with the opposition parties on this matter. However, I hope that between now and Third Reading the Minister will give the amendment close consideration with a view to positively bringing forward a measure on similar lines.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, as we have heard, the amendment would give Ministers a power to make regulations allowing the courts to transfer to the Competition Appeal Tribunal issues arising in civil proceedings that require the determination of whether there has been an infringement of competition law. The tribunal's determination of that competition matter would then be binding on the court.

I listened carefully to the arguments. We certainly do not dispute that once the jurisdiction to handle civil proceedings involving breaches of both Articles 81 and 82 is devolved to national courts and national authorities, this may well become an increasingly important area of work. The fundamental issue in this regard is whether it is realistic and desirable for the courts themselves to build up a specialist body of law in this area. In our view, it is both realistic and desirable and we do not want to see the fragmentation that the amendment would cause. We are confident that where such cases arise, the courts will be able to deal efficiently with them. It is already the case that national courts are empowered to take decisions on Articles 81(1) and 82 and they can apply the equivalent provisions of the Competition Act 1998. It is true that few such cases have been dealt with by the courts hitherto. It is also true that in future Article 81(3) issues will be added to the mix of matters with which the courts will have to deal.

However, judges at all levels and in particular those in the High Court, where we would expect the vast majority of these cases to be heard, are expected to handle—and, if necessary, become expert in—a wide range of areas of law as and when they come their way. They already have to weigh technical evidence, including that relating to economic effects presented by experts in a variety of cases. The Judicial Studies Board is there to ensure appropriate training in new areas of law.

I should add the important point that the EU regulations being developed as part of the EU competition law modernisation project cater for the fact that national courts may need access to expert advice. Regulations will enable the competition authorities of the member states—in our case, primarily the Office of Fair Trading—to submit written observations to the national courts on issues relating to the application of Articles 81 and 82. Further, with the permission of the court in question, they will also be able to submit oral observation to the courts as an expert witness.

The OFT will not act in that expert capacity on every occasion but it is likely to want to offer views where a case is particularly important or is likely to set important precedents. That will represent an important source of advice for the courts when the occasion demands.

The alternative envisaged by the amendment to give the Competition Appeal Tribunal a new role and additional powers would have a number of important disadvantages. It would entail an unnecessary degree of fragmentation in the judicial system. The consideration of civil proceedings would be split between the courts and the CAT. There would be increased uncertainty for parties about the path that their case would take because that would depend on the readiness of individual judges to refer matters to the CAT. We believe that it would also be a significant obstacle to the development of relevant expertise by the High Court for any cases to be transferred to the CAT.

There are other more technical difficulties. It would, for example, be highly unusual for a tribunal to make decisions on an issue arising in a case before the High Court or Court of Sessions judge that is binding on that judge, not least because tribunal decisions are subject to judicial review, with the court exercising the power of judicial review.

I shall add one final but important point. This whole area is obviously a matter of judgment. Although we currently do not believe that it would be appropriate to take the power contemplated in this amendment, if such provision proves necessary when we come to examine the implementation of the proposed EU modernisation regulation, we believe that it will be possible to use the powers under Section 2 of the European Communities Act, combined with those in Clause 204, to secure the goals of the amendment. We believe that we could use those powers to give the CAT the jurisdiction that it would need and the courts the powers needed to enable matters and issues to be transferred to the CAT to determine or for the CAT to assist the courts in appropriate cases.

As I said, we do not want to send the signal that that is the direction in which we expect to have to go by taking a specific power. However, an alternative power exists. I do not wish to rule out the possibility of using it if it proves appropriate to enable us to implement our Community obligations. The amendment is therefore unnecessary. For those reasons, I ask the noble Lord to withdraw the amendment.

Photo of Lord Kingsland Lord Kingsland Conservative 8:30 pm, 15th October 2002

My Lords, I thank the Minister for his very full reply in which he sought to contradict all of the points made by myself and the noble Lord, Lord Razzall. I was much encouraged by the speech of the noble Lord, Lord Borrie, who rightly referred to Sir Jeremy Lever—who is really the author of this amendment—as the outstanding competition lawyer of his generation.

No one knows the field of competition law and courts like Sir Jeremy. He has no self-interest whatever in promoting one particular pattern of jurisprudence rather than another. His proposal is the result of deep reflection on the current system and fears about how we might be inadequately resourced to face the challenges ahead.

I shall reflect between now and Third Reading on what the noble Lord the Minister said. I am slightly reassured by his reference to the possibility of using a power that the noble Lord believes he already has to cope with what is likely to happen in the European Community in the next two or three years. I should have preferred the noble Lord to have taken that power now in the Bill.

I shall reflect on the Minister's response and I thank him for his full reply. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 21 [Duty to make references in relation to completed mergers]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 29:

Page 12, line 12, leave out paragraph (e) and insert—

"(e) the European Commission is considering a request made, in relation to the matter concerned, by the United Kingdom (whether alone or with others) under article 22(3) of the European Merger Regulations, is proceeding with the matter in pursuance of such a request or has dealt with the matter in pursuance of such a request."

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, this group of amendments covers issues related to the interaction between domestic and European competition law.

Throughout the process of updating the UK's competition framework, the Government have had to set the updated regime within its wider—European—context. European competition law, where it applies, has primacy over domestic law. That fact means that it is not necessary in the Bill to spell out the detailed interaction between Community and domestic law. Users of the legislation, of course, will need a clear understanding of the interactions. That will be secured by the new requirements introduced by Amendments Nos. 82 and 134 for the OFT and the Competition Commission to provide advice and guidance on the interaction between Community law and the new domestic mergers and market investigations regimes. We believe that that approach has the benefit of simplicity. It will also help to "future proof" the Bill against developments in European competition law. Amendments Nos. 91, 92, and 135 are consequential on the new requirement to provide advice and they define the term "Community law".

In very exceptional circumstances, it is possible that a merger case handled initially in Brussels can fall subsequently to domestic jurisdiction. It is important that the domestic authorities are not time-barred from considering cases that may have been delayed by European Community merger regulation proceedings. The new clause introduced by Amendment No. 82 ensures that the OFT retains the power to refer such cases. That does no more than update the existing provision set out in regulations to bring it into line with the new regime and ensure that the impact is clear from the face of the Bill.

I now want to turn to the amendments involving provisions for the OFT's duty to refer mergers. Those mergers that fall to Europe exclusively will not in fact be in the frame for consideration under the domestic merger regime. Amendments Nos. 29, 35, 36, 38, 47, 73 and 74 therefore correct the current text of the Bill to ensure that the exceptions to the duty to refer—and the associated timetabling provisions—cover only those mergers that would fall to the OFT. The effect is to narrow the exception to only those UK mergers that the OFT decides to refer to the European Commission, on the grounds that the European Commission is better placed to consider their competitive impact under the European Community merger regulation. The previous, wider exception would have prevented references also in those very rare instances where the UK merger regime and provisions of Community competition law can legitimately apply in parallel.

A further, related amendment is Amendment No. 41, which clarifies that the Secretary of State will not give an intervention notice under Clause 41 in a case where Community law prevents a reference from being made.

Moving on from the power to refer cases under the domestic regime, I would like to turn to new Clauses 62 and 63 and consequential Amendments Nos. 85, 86, 87 and 93, which all deal with those mergers that fall to the European Community merger regulation—the ECMR. These new clauses and amendments seek to close an unintended gap in the current Bill. They ensure that the Enterprise Bill provides a vehicle for the UK to act in ECMR cases to protect important non-competition interests—the primary concern being national security. That is specifically foreseen by the European Community merger regulation itself. The European Commission has exclusive jurisdiction over the competition aspects of all European Community merger regulation cases, but member states are allowed to take action to protect a strictly limited range of recognised "legitimate interests", including public security.

Our intention is to preserve the current position, which is that, where necessary, the UK can use the domestic merger control regime to take action on matters other than competition, such as defence, in relation to cases that fall to the ECMR. It is important to note, however, that the power to protect legitimate interests will not range any wider than the public interest considerations that may be taken into account under the new UK merger regime.

Amendment No. 62 introduces a new clause which ensures that the Secretary of State can give a European intervention notice in an ECMR case. The Secretary of State will be subject to similar disciplines as those that will operate under the Clause 41 intervention arrangements.

Amendment No. 63 introduces a further new clause which provides a power to establish the scheme for protecting legitimate interests along the lines of the domestic public interest and special public interest regimes.

Finally in this group, I want to touch on Amendments Nos. 168 and 169. Clause 204 gives the Secretary of State a power, exercisable by the affirmative procedure, to make regulations modifying the Competition Act 1998 so as to bring it more closely into line with the reformed arrangements for the enforcement of Articles 81 and 82 of the EC treaty—commonly known as "modernisation". We expect the treaty to be implemented in 2004 and it will devolve much of the work of enforcing Articles 81 and 82 to national competition authorities.

Two amendments that we propose—Amendments Nos. 168 and 169—will, together, make it clear that regulations made for the purposes of modernisation can confer the power to make rules, such as procedural rules governing how the UK competition authorities will handle various aspects of the investigation and decision-making process under Articles 81 and 82. At present, the rules governing the enforcement of the Competition Act by the OFT are made by the director-general and approved by the Secretary of State. The power would remove any doubt as to the ability to allow for the director-general to make such rules in relation to Articles 81 and 82.

The interactions between the two pieces of legislation are fairly complicated. However, I believe that, by setting out these amendments, we provide additional clarity to the position. I beg to move.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, most telegraphically, I want to say to the Minister that the amendment to Clause 21 seems to us to be very sensible. It gives the OFT the power not to make a reference in the event that the UK and other member states are contemplating referring a merger to the EC Commission under the ECMR.

I want to raise only one question in relation to this matter. It is possible that the noble Lord has already answered it but that, inadvertently, I did not hear him. Presumably, once the European Commission ceases to consider such a request—that is, after it has made up its mind—the power would revert to the OFT to make a reference again. I am sorry not to have given the Minister notice of that question. He may want to reflect on it and return at Third Reading.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, the noble Lord is right that I should like to reflect on the matter. Perhaps I may write to him because the point becomes rather technical and I do not want to mislead the House. Therefore, if I may write to the noble Lord, that would be the easiest way to proceed.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, if there is a lack of clarity about this, perhaps I may respectfully suggest to the noble Lord that he should reflect on inserting a new clause after Clause 118 in order to clarify the point.

On Question, amendment agreed to.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 30:

Page 12, line 36, after "of" insert "a notice or possible notice under section 41(2) or 58(2) or"

On Question, amendment agreed to.

Clause 22 [Relevant merger situations]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative 8:45 pm, 15th October 2002

moved Amendment No. 31:

Page 12, line 43, leave out "£45" and insert "£100"

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, we now turn to the subject of relevant merger situations under Clause 22. We also return to the question of the turnover test, which we debated for a short time in Committee. Perhaps I may stress that the purpose of Amendment No. 31 is to ensure that we avoid the imposition of excessive burdens on both business and the OFT by making certain that the whole system is not clogged up by the OFT having to review transactions which are unimportant in competition terms.

The Government do, indeed, propose to remove the assets test in the Fair Trading Act 1973 and replace it with a turnover test. At present, Clause 22(1)(b) refers to,

"the value of the turnover in the United Kingdom of the enterprise being taken over exceeds £45 million".

I have discussed this clause with the CBI and with several of my noble friends and colleagues. Whereas we favour removal of the assets test from the scope of the UK's merger regime, since assets are not the best test of the market strength or otherwise of a company, and as the Government acknowledged back in 1999 when the reforms were first floated, asset structures are changing.

However, we believe that if the assets limb is to be replaced with a turnover test, it is vitally important to achieve the appropriate level. Therefore, I asked the CBI what figure would be arrived at today if it were to take the £70 million gross assets figure, which was last set in 1994 by RPI, and increase it through the mechanism of the price index. The answer was £85 million.

If one applies a ratio of average turnover to gross assets from, say, a sample of 500 companies, by using the same database as the Government, we then arrive at a figure of £100 million. That is the justification for the view that, if £45 million were replaced by £100 million, that would ensure that transactions which were not important in competition terms did not clog up the system.

A key difference between that analysis and the calculations used by the Government is that, as I explained, the figure to which I refer was arrived at by the use of indexation through the application of the RPI. Things have changed a great deal since 1994 so I suggest to the Minister that £100 million is a more realistic and reliable figure to adopt.

Grouped with Amendment No. 31 is Amendment No. 33 which seeks to leave out on page 13 subsections (3) to (8) inclusive and to insert a new subsection (3) to state:

"The condition mentioned in this subsection is that the merger would create or strengthen a share of 25 per cent or more in any relevant market in the United Kingdom or a substantial part of the United Kingdom".

Of course, the concept of "relevant market" underpins modern competition law. It is used elsewhere in the Enterprise Bill and, so far as I can gather, the test is applied in all other jurisdictions.

The share of supply test, which dates from the old Fair Trading Act 1973, is an anachronism, never even adopted in other jurisdictions. While share of supply and market share may sometimes be the same, they are often different. If the substantial lessening of competition—SLC—test is adopted, a share of supply threshold will require the OFT to analyse the relevant market on a multi-basis in any event. A separate test would be required and that is a confusing and unnecessary aspect of the Bill. The share of supply test is a classic example of the old formalistic approach, long-since abandoned in favour of a more substantive approach to such issues.

Also in this group are Amendment No. 37, on which I look forward to hearing the Minister, and Amendments Nos. 83 and 84. No doubt the Minister will explain the reasoning behind Amendment No. 83, which would give Ministers the power to alter the share of supply test. I still contend that if the noble Lord were to accept Amendments Nos. 31 and 33, a great deal of confusion would be removed. There would be clarity and a lot of situations not necessary to investigate and which would clog up the system could be avoided. I beg to move.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, I will deal first with the amendment that would raise the turnover threshold to £100 million. We fulfilled the commitment that I gave in Committee to look again at the evidence underpinning our preferred £45 million figure. We shared that second set of analyses with the CBI, which in turn undertook some alternative analysis. We are grateful to the CBI for its contribution to this debate. The letter that I sent earlier this month summarised the data and why we think they showed that the lower threshold is still the right one.

We now have figures based on two independent sets of data. Our original analysis, based on the One Source Database, showed that the number of UK companies with total assets of £70 million or more was 7,473. The number of companies with a turnover of £45 million or more was only 7,057. That would, a priori, seem to suggest that using the turnover test brings slightly fewer companies into the net.

The second analysis carried out by officials over the summer using the Fame database, which holds data relating to company returns made in 2000 and 2001, identified 9,966 UK companies with total assets of £70 million or more but only 7,806 companies with a turnover of £45 million or more. If anything, those findings show that we have pitched the turnover threshold too high rather than too low.

I am not certain that I understand the basis of the noble Lord's alternative figures. I believe that he took the £70 million assets test and indexed that up, but I am not sure how he got from assets of £85 million to a turnover figure. One cannot index the asset figure, then add on a bit more to make it a turnover figure.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, the figure of £70 million becomes £85 million by indexation. Then applying a ratio of average turnover to gross assets from a sample of more than 500 companies brings one closer to the figure of £100 million.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, the problem with that figure£151;which I believe was the basis of the CBI analysis—is that it is based on measuring the average turnover only of those companies that happen to meet the assets test. Changing the test inevitably means covering a somewhat different range of companies. For example, new technology companies, whose turnover may significantly exceed their asset base, may be covered by the test for the first time—but property companies with the opposite assets-to-turnover ratio may drop out. The calculation is difficult to make, in terms of going from an assets test to turnover. It is by no means clear that ours is a foolproof method but at least it is clear that it simply looks at the number of companies that are caught by the two different tests. The new test, if anything, will catch fewer companies than before.

As I said in Committee, we are dealing essentially with an informed estimate. We remain confident that a figure of £45 million comes closest to our original goal of identifying a turnover threshold that would bring within the scope of the merger regime roughly the same number of companies as are currently covered by the £70 million worldwide assets test. We have built into the new legislation a mechanism for keeping the level of the threshold under review and for adjusting it through secondary legislation in the light of experience. If that shows that we are bringing too many harmless mergers within the scope of the mergers regime, we can adjust the figure.

As to Amendments Nos. 32 and 33, the share of supply test is being retained from the Fair Trading Act 1973 and will apply to mergers that create or enhance a 25 per cent share of supply in the UK or a part of the UK. It ensures that competition authorities can scrutinise those mergers that do not necessarily involve the biggest companies but can nonetheless narrow the market—for example, in a region. That definition covers the two broad types of sector—goods and services. If the share of supply test did not cover services, only the turnover test would be applicable to those companies. We consider that that may leave an unacceptably large hole in the merger regime. For example, broadcasting businesses such as regional radio stations may not meet the turnover threshold. Further, it is not always clear cut whether a business provides goods or a service. The current drafting allows the OFT the discretion to allow for that reality.

When we debated a proposal identical to Amendment No. 33 in Committee, I set out why the share of supply test is the better one to use as a jurisdictional threshold. It has several advantages. First, it is a straightforward test. Compared with the more complex market share test, it is easy to apply. Secondly, we are wary of introducing the more substantive market share test at this point because of the potential burden that would entail for businesses. They are less likely to know whether their merger would qualify on market share grounds and may feel pressed to employ economic advisers at an early stage in an investigation. There would be additional burdens for the OFT, whose workload would increase for similar reasons.

The share of supply test is a commonsense threshold that complements the turnover threshold. Together, they provide a sound jurisdictional structure for the competition authorities, which has worked well over the years.

Government Amendments Nos. 83, 84 and 88 relate to the share of supply test. Amendment No. 83 would give the Secretary of State the power to alter the share of supply test by affirmative resolution. As I explained earlier, the share of supply test has served us well over time. Business is used to it and the test has been effective in capturing cases where enterprises will have a substantial share of supply following a merger.

The amendment is designed to ensure that we can keep the threshold accurately targeted on the mergers that we wish to scrutinise, by being responsive to changes in the economic environment. It complements the power to make changes to the other jurisdictional test—the turnover test—in light of experience. The power obliges the Secretary of State, in consultation with the OFT and the Competition Commission, to consider in particular the desirability of ensuring that any amended or new condition continues to operate by reference to the degree of commercial strength that results from the merger.

Amendments Nos. 84 and 88 are consequential on the introduction of the new power. Amendment No. 37 is a minor amendment to the turnover test clause. The amendment is in the same spirit of ensuring that these thresholds are relevant and practical. It allows us to ensure that the competition authorities have a degree of discretion in making the calculation, within the boundaries of the provisions mentioned in draft legislation. I beg to move.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative 9:00 pm, 15th October 2002

My Lords, the Minister and I obviously beg to differ, particularly over Amendment No. 33, where I believe that the share of supply test is an anachronism. That is probably a polite way of describing it. It is a classic example of the old formalistic approach, which has never been adopted in any other jurisdiction. However, I shall consider carefully the Minister's comments, in particular regarding Amendment No. 31. I shall reflect on some of the figures he put forward and consult those who put forward the alternative figures. I believe that we are moving ahead with the same objective; the important thing is to get there. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments No. 32 and 33 not moved.]

Clause 24 [Extension of time-limits]:

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

moved Amendment No. 34:

Page 14, line 27, after "to" insert "take reasonable steps to"

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

My Lords, Amendment No. 34 also deals with relevant merger situations. In the relevant subsections in Clause 23 we come across time limits and prior notice. However, Clause 24 carries the weasel words "extension of time-limits". That is an issue about which people have written to me expressing their concern.

Under subsection (2) the OFT has the right to extend the time limit if the person has,

"failed to provide, within the period stated in a notice under section 30 and in the manner authorised or required, information requested of him in that notice".

It has been suggested to me that that wording is particularly inflexible and prescriptive and could be used in future by asking for information to be provided in a manner with which it was not possible to comply as precisely as is laid down. That issue has given rise to a number of concerns and letters addressed to me. The Minister will say that that will never happen, that the OFT will be perfectly reasonable, that it will use a format which is fair, under which such information could always be supplied.

My amendment seeks to insert the words "take reasonable steps", so that if a firm involved takes reasonable steps to provide reasonable information, even if it cannot be done in precisely the format or manner authorised or required, it will have complied with the provision and therefore there will not be an extension to the time limit. It must be in all our interests that these relevant merger situations are resolved as quickly as possible. Without that, the period of uncertainty for the firms, their suppliers, creditors and employees, would be unduly elongated. I believe that the words "take reasonable steps" would meet the concerns that have been expressed. I beg to move.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, Amendment No. 34 relates to the power of the OFT to extend the deadlines for its investigation pre-reference where requested information has not been supplied. The amendment proposes that no extension should be possible where the relevant person has taken reasonable steps to provide the information.

However, in this case it is important to draw a distinction between the power to extend the timetable for reference and any punitive action, such as is available to the Competition Commission in the form of monetary penalties. The powers to extend timetables have been introduced to ensure that the regime works effectively. Where the OFT does not have adequate information to conclude that a merger will not result in a substantial lessening of competition, it will be faced with no option but to refer the merger unless it has this power to extend the timetable for reference.

In this case there is a community of interest between the OFT, which requires the information, and is therefore looking for an extension, and the provider of the information, who would like the decision to be made by the OFT on a proper basis of information. If it is not, there is always the danger that the OFT will say, "We are coming up against a deadline and in those circumstances we shall have to refer". I am totally behind the idea that we must ensure that that is not used as an excuse for delay. However, if the power to extend the deadline is removed, we could fall into a situation where the information is not provided and the OFT would have to refer. That would not be desirable from anyone's point of view.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

My Lords, I am grateful to the Minister, in particular for his assurance that the information required would not be asked for in a form which is so prescriptive that firms would find it hard to comply. With that assurance I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 35 and 36:

Page 15, line 7, leave out "or is" and insert "(but is not yet"

Page 15, line 15, leave out from "Kingdom" to end of line 16.

On Question, amendments agreed to.

Clause 27 [Turnover test]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 37:

Page 17, line 24, at end insert—

"(3A) An order under subsection (2) may, in particular, make provision enabling the decision-making authority to determine matters of a description specified in the order (including any of the matters mentioned in paragraphs (a) to (c) of subsection (3))."

On Question, amendment agreed to.

Clause 32 [Duty to make references in relation to anticipated mergers]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 38:

Page 21, line 5, leave out paragraph (e) and insert—

"(e) the European Commission is considering a request made, in relation to the matter concerned, by the United Kingdom (whether alone or with others) under article 22(3) of the European Merger Regulations, is proceeding with the matter in pursuance of such a request or has dealt with the matter in pursuance of such a request."

On Question, amendment agreed to.

Clause 34 [Questions to be decided in relation to completed mergers]:

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

moved Amendment No. 39:

Page 21, line 31, at end insert "for which the annual output exceeds £500 million"

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

My Lords, Amendments Nos. 39 and 40 concern questions to be decided in relation to completed mergers and parallel a discussion held in Committee. I am grateful to my noble friend Lord Hunt for having moved the amendments then. Unfortunately, I was unable to be present on that day. I have read carefully the debate and agree with my noble friend's comments on clogging the system.

However, I am anxious that we should reconsider an issue which I raised at Second Reading, which is of a different order. I raised then the desirability of having based in Britain as many world class companies as possible. At Second Reading the Minister chided me about that. He seemed to think that "world class" and "national champion" are the same phrase. It may be in his mind, but it is not in mine. The "national champion" concept implies a laying on of hands by the Government on a particular firm. It is a proactive selection of a company. I agree with the Minister that it is bound to fail; it has failed and will continue to do so.

"World class" means creating a supportive environment in which business can prosper so that businesses grow of their own volition to be world competitors. It is an enabling, permissive approach focused on the overall environment, not on single firms.

It is a commonplace that the United Kingdom is a tiny market by world standards. If UK firms are to compete in the new technologies within the European Union, let alone in the wider world, they need to achieve scale. The tests are the £45 million turnover test that we discussed under Clause 22(1)(b) and the 25 per cent of a market test under Clause 22(3) which, if exceeded, leads to a "relevant merger situation".

In an infant industry such as biotechnology, a sector of the UK market might have an assumed value of no more than £250 million—tiny by world standards, but fairly large in a UK context. The Minister may correct me, but as I understand it a UK company in this sector with a turnover of over £65 million; that is, more than a quarter of the market, could not make any acquisition without creating a "relevant merger situation". That is unnecessarily prescriptive.

An overseas firm could make such an acquisition. In this case the Bill actively disadvantages UK companies in achieving the scale that would enable them to compete on the world stage. My amendment—I do not suggest that it is perfectly drawn—seeks to exclude from consideration UK markets worth less than £500 million; that is, half a billion pounds. That would allow single firms to dominate markets, but only those that are so small as to be insignificant in the overall economy; certainly in the world economy. It would create an environment in which UK-based high-tech companies could compete more effectively on the world stage.

When the Minister replied in Committee he drew attention to Clause 21(2), where the OFT has,

"a discretion not to refer a merger where the market or markets concerned are not of sufficient importance to justify making a reference".—[Official Report, 18/7/02; col. 1453.]

I accept that as a way out, but the issue is whether such a fundamental choice, which might radically affect the UK's world competitive position in a particular industry, should be left with the OFT. I think not. Flexibility has its attractions but there is a danger that the OFT will come down on the side of caution and not use its wider discretionary powers under Clause 21(2). I beg to move.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, in the previous debate I tried to point out that world class today is not created by reducing competition. All the evidence shows that where world class companies have been created—this is true of America as much as Japan—it is because there is intense national competition. Companies grow and become world competitors on that basis.

Any world class biotech company of such a size will be considering operating on a world scale and will probably already have offices in America and parts of Europe. World class companies are those that have already broken out of looking only at the UK market.

Amendments Nos. 39 and 40 would prevent the Competition Commission from taking any remedial action against mergers which are expected to result in a substantial lessening of competition, but where the market concerned has an annual output of less than £500 million.

We think that this is the wrong approach. A merger that results in a substantial lessening of competition will have a serious impact on consumers and other businesses flowing from the fact that the merged business is now in a position to exercise market power. It does not matter whether the market is small or large—the impact on the consumers affected will be the same.

We are cautious about de minimis thresholds because markets are dynamic and not static. They are all at different stages of economic development. As I said in Committee when similar issues were raised, the current size of a market might not be a reliable indicator of its economic importance. Some markets, for example, might be large but declining and about to be superseded by new technology. Conversely, a small market in an emerging technology may have considerably greater longer-term significance, such that remedial action might very well be justified. This is an area where we think it would be unwise to make hard and fast rules for the competition authorities.

I should stress, however, that the new mergers regime does allow for, and in places makes extra provisions allowing the size or importance of markets to be taken into account. First, we have the basic jurisdictional tests—in other words, the turnover threshold and the share of supply test. These provide a rough and ready assessment of size and importance. We have, of course, taken powers in the Bill to adjust these basic jurisdictional thresholds in the light of experience.

As the noble Lord also said, once through the jurisdictional gateway, there is an express discretion in Clause 21(2)(a) for the OFT to decide not to refer a merger if it believes that the market concerned is not of sufficient importance to justify one. This discretion will ensure that trivial mergers are not given any further attention. Once a merger is referred, there is no further specific reference to the size or importance of the merger in the tasks that the Competition Commission has to perform. However, the commission is required only to take the remedial action that it considers "reasonable and practicable". In certain rare cases, therefore, the commission would have scope to apply no or lesser remedies if it felt that remedies would be unreasonable because, for example, the costs would be disproportionate to the size of the markets concerned. That should ensure that the duties are exercised sensibly and only in an appropriate case.

I hope that I have persuaded the noble Lord, Lord Hodgson, that it is unnecessary to make further express provision for factoring in the size and importance of markets and that this is a matter where it is sensible to leave the commission and the OFT with a limited, but none the less real discretion to make their judgments. I urge the noble Lord to withdraw the amendment.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative 9:15 pm, 15th October 2002

My Lords, I am grateful to the Minister. He has prayed in aid the example of the United States and the extreme competition there as producing benefits for the consumer. He is absolutely right. But in an economy that is 10 times the size of ours, the eleventh largest US firm will, ipso facto, probably be larger than the largest UK firm. Therefore, they have advantages of scale—to a lesser extent, the same applies in the Japanese markets—which will enable them to outgun, in terms of research and development and their power base, UK firms.

My amendment seeks to make sure that UK firms are not disadvantaged if they want to agglomerate to try to reach that level of scale in order to compete more evenly.

I do not suspect that I shall convince the Minister of my point of view today. We shall have to rely on the discretion of the OFT under Clause 21(2). I therefore seek leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 40 not moved.]

Clause 41 [Intervention by Secretary of State in certain public interest cases]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 41 to 46:

Page 27, line 42, at end insert "or

(ii) Community law or anything done under or in accordance with it"

Page 28, line 21, at end insert—

"(aza) in relation to the making of a report by the OFT under section 43, the time of the making of the report;"

Page 28, line 42, after "State;" insert—

"(ga) the powers to extend time-limits under section 24 as applied by subsection (5) above, and the power to request information under section 30(1) as so applied, were not exercisable by the OFT or the Secretary of State before the giving of an intervention notice but the existing time-limits in relation to possible references under section 21 or 32 were applicable for the purposes of the giving of that notice;

(gb) the existing time-limits in relation to possible references under section 21 or 32 (except for extensions under section 24(4)) remained applicable on and after the giving of an intervention notice as if any extensions were made under section 24 as applied by subsection (5) above but subject to further alteration by the OFT or the Secretary of State under section 24 as so applied;

(gc) in subsection (1) of section 30 for the words "section 21" there were substituted "section 44(2) or (3)" and, in the application of that subsection to the OFT, for the word "deciding" there were substituted "enabling the Secretary of State to decide";

(gd) in the case of the giving of intervention notices, the references in sections 22 to 31 and 33 to the making of a reference or a reference were, so far as necessary, references to the giving of an intervention notice or an intervention notice;"

Page 29, line 16, at end insert—

"(1A) Where the Secretary of State believes that it is or may be the case that two or more public interest considerations are relevant to a consideration of the relevant merger situation concerned, he may decide not to mention in the intervention notice such of those considerations as he considers appropriate."

Page 29, line 24, after "undertaking" insert "or group of undertakings"

Page 30, line 4, after "undertaking" insert "or group of undertakings"

On Question, amendments agreed to.

Clause 45 [References under section 44: supplementary]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 47:

Page 32, line 32, leave out paragraph (b) and insert—

"(e) the European Commission is considering a request made, in relation to the matter concerned, by the United Kingdom (whether alone or with others) under article 22(3) of the European Merger Regulations, is proceeding with the matter in pursuance of such a request or has dealt with the matter in pursuance of such a request."

On Question, amendment agreed to.

Clause 53 [Decision of Secretary of State in public interest cases]:

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

moved Amendment No. 49:

Page 42, line 42, leave out subsections (3) and (4).

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

My Lords, I return to an issue which we have covered before. That is, the specified considerations about national interest. In part the amendment relates to Clause 57 and the powers of the Secretary of State to modify the section by order. The Minister has already spoken to an amendment which inserts additional words in Clause 57(3). My concern is the way in which the wording overlaps and duplicates Clause 41(3), and appears to achieve the same outcome.

Secondly, my amendment seeks to remove the open-ended nature of Clause 57, subsections (3) and (4). Therefore, the subsections are duplicative and open-ended. The concept of national security is easily understood. I support it. But this catch-all seems to be a very blunt instrument. I find catch-alls dangerous.

The Minister earlier was after me about the importance of the market and how my suggestion, when speaking to amendments with the noble Lord, Lord Phillips, was soft on the importance of the market. I assure the noble Lord that I am not soft on the importance of the market. Subsections (3) and (4) of Clause 57 seem to me to say that the market is very important, but that if we do not like the way that the market is working we have subsections (3) and (4) and we can offset the market by using our powers under those subsections. What the Minister said in Committee did not give me huge confidence that the provisions might not be used in that way. If we are going to be marketeers let us be marketeers. We should not have clauses where there is an open-ended issue. National security is fine, but we should stick to national security and not have the ability to bring in all kinds of other criteria as per that clause. I therefore beg to move.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, I hasten to say that there is no weakening at all of our belief in competition, but there is a question of whether we can at present foresee all circumstances in which a Secretary of State may have legitimate grounds to intervene. The provision deals with that uncertainty about issues that we cannot today foresee. The amendment would remove the mechanism to amend the list of public interest considerations. We believe that that power is a necessary safeguard to ensure that the Bill can be adjusted in future.

As we have previously said, only national security will be defined as a consideration by the Bill, but we cannot predict all future circumstances. During consideration of the Bill in Committee, I tried to give a flavour of how the power could be used in future, with respect to new technology that we may need to control. I can do no more than that. National security is clearly provided for in the Bill and the forthcoming Communications Bill will make provision for plurality in newspaper mergers. We cannot foresee further specific considerations. However, we believe that it is sensible to provide for a transparent mechanism to deal with unforeseen circumstances.

Our clear intention is to deliver a system in which the vast majority of cases are decided by the independent competition authorities against a competition-based test. We have, however, recognised that the interests of national security need to be provided for in the régime, and we think it sensible to provide a mechanism for further public interest considerations to be specified in future. I understand the concern that the Government should not be able to abuse that power, but we have ensured safeguards in the Bill. The power to alter the considerations specified will operate transparently and the Secretary of State will publish her reasons for any order. Most importantly, the Secretary of State is prevented from taking a final decision based on a non-finalised public interest consideration.

I hope that I have been able to give sufficient reassurance. I invite the noble Lord to withdraw his amendment. I repeat that there is no weakening in our belief in competition.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

My Lords, before the Minister sits down, there is one thing that I could not understand from our earlier debate. Will the order be made by affirmative or negative resolution?

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, I believe that it will be by affirmative resolution of Parliament. I shall check that point and, if I am not right, I shall write to the noble Lord.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

My Lords, I am grateful to the Minister for that and grateful that he has understood people's concern about the open-ended nature of Clause 57(3) and (4). If there is an affirmative resolution, at least we will have an opportunity to debate the order fully when the new powers come to be used. In the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 50:

Page 42, line 43, leave out "adding to," and insert "specifying in this section a new consideration or"

On Question, amendment agreed to.

Clause 58 [Intervention by Secretary of State in special public interest cases]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 51 to 55:

Page 43, line 15, leave out paragraphs (b) and (c).

Page 43, line 21, leave out "a" and insert "one or more than one"

Page 43, line 28, at end insert "and the conditions mentioned in subsection (3A) are satisfied.

(3A) The conditions mentioned in this subsection are that, immediately before the enterprises concerned ceased to be distinct—

(a) at least one of the enterprises concerned was carried on in the United Kingdom or by or under the control of a body corporate incorporated in the United Kingdom; and

(b) a person carrying on one or more of the enterprises concerned was a relevant government contractor."

Page 43, line 39, at end insert—

"(aza) in relation to the making of a report by the OFT under section 60, the time of the making of the report;"

Page 44, line 8, after "State;" insert—

"(fa) the powers to extend time-limits under section 24 as applied by subsection (4) above, and the power to request information under section 30(1) as so applied, were not exercisable by the OFT or the Secretary of State before the giving of a special intervention notice;

(fb) in subsection (1) of section 30 for the words "section 21" there were substituted "section 61(2)" and, in the application of that subsection to the OFT, for the word "deciding" there were substituted "enabling the Secretary of State to decide";

(fc) in the case of the giving of special intervention notices, the references in sections 22 to 31 and 33 to the making of a reference or a reference were, so far as necessary, references to the giving of a special intervention notice or a special intervention notice;"

On Question, amendments agreed to.

Clause 59 [Special intervention notices under section 58]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 56 to 58:

Page 44, line 38, at end insert—

"(1A) Where the Secretary of State believes that it is or may be the case that two or more considerations specified in section 57 are relevant to a consideration of the special merger situation concerned, he may decide not to mention in the special intervention notice such of those considerations as he considers appropriate."

Page 45, line 1, after "undertaking" insert "or group of undertakings"

Page 45, line 28, after "undertaking" insert "or group of undertakings"

On Question, amendments agreed to.

Clause 60 [Initial investigation and report by OFT]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 59 and 60:

Page 46, line 3, leave out ", in particular,"

Page 46, line 4, after "believes" insert "(disregarding section 58(3A)(b))"

On Question, amendments agreed to.

Clause 65 [Decision and enforcement action by Secretary of State]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 62 and 63:

After Clause 65, insert the following new clause—

"EUROPEAN MERGERS: INTERVENTION TO PROTECT LEGITIMATE INTERESTS

(1) Subsection (2) applies where—

(a) the Secretary of State has reasonable grounds for suspecting that it is or may be the case that—

(i) a relevant merger situation has been created or that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and

(ii) a concentration with a Community dimension (within the meaning of the European Merger Regulations), or a part of such a concentration, has thereby arisen or will thereby arise;

(b) a reference which would otherwise be possible under section 21 or 32 is prevented from being made under that section in relation to the relevant merger situation concerned by virtue of Community law or anything done under or in accordance with it; and

(c) the Secretary of State is considering whether to take appropriate measures to protect legitimate interests as permitted by article 21(3) of the European Merger Regulations.

(2) The Secretary of State may give a notice to the OFT (in this section "a European intervention notice") if he believes that it is or may be the case that one or more than one public interest consideration is relevant to a consideration of the relevant merger situation concerned.

(3) A European intervention notice shall state—

(a) the relevant merger situation concerned;

(b) the public interest consideration or considerations which are, or may be, relevant to a consideration of the relevant merger situation concerned; and

(c) where any public interest consideration concerned is not finalised, the proposed timetable for finalising it.

(4) Where the Secretary of State believes that it is or may be the case that two or more public interest considerations are relevant to a consideration of the relevant merger situation concerned, he may decide not to mention in the intervention notice such of those considerations as he considers appropriate.

(5) No more than one European intervention notice shall be given under subsection (2) in relation to the same relevant merger situation.

(6) Where the Secretary of State has given a European intervention notice mentioning a public interest consideration which, at that time, is not finalised, he shall, as soon as practicable, take such action as is within his power to ensure that it is finalised.

(7) For the purposes of deciding whether a relevant merger situation has been created or whether arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation, sections 22 to 31 (read together with section 33) shall apply for the purposes of this section as they do for the purposes of Chapter 1 but subject to subsection (8).

(8) In their application by virtue of subsection (7) sections 22 to 31 shall have effect as if—

(a) references in those sections to the decision-making authority were references to the Secretary of State;

(b) for paragraphs (a) and (b) of section 22(9) there were substituted ", in relation to the giving of a European intervention notice, the time when the notice is given";

(c) the references to the OFT in section 23(2)(a) and (b) included references to the Secretary of State;

(d) sections 24, 30 and 31 were omitted; and

(e) the references in sections 22 to 28 and 33 to the making of a reference or a reference were, so far as necessary, references to the giving of a European intervention notice or a European intervention notice.

(9) Section 41(3) shall, in its application to this section and section (European mergers: scheme for protecting legitimate interests), have effect as if for the words "intervention notice" there were substituted "European intervention notice"."

After Clause 65, insert the following new clause—

"EUROPEAN MERGERS: SCHEME FOR PROTECTING LEGITIMATE INTERESTS

(1) The Secretary of State may by order provide for the taking of action, where a European intervention notice has been given, to remedy, mitigate or prevent effects adverse to the public interest which have resulted from, or may be expected to result from, the creation of a European relevant merger situation.

(2) In subsection (1) "European relevant merger situation" means a relevant merger situation—

(a) which has been created or will be created if arrangements which are in progress or in contemplation are carried into effect;

(b) by virtue of which a concentration with a Community dimension (within the meaning of the European Merger Regulations), or a part of such a concentration, has arisen or will arise; and

(c) in relation to which a reference which would otherwise have been possible under section 21 or 32 was prevented from being made under that section by virtue of Community law or anything done under or in accordance with it.

(3) Provision made under subsection (1) shall include provision ensuring that considerations which are not public interest considerations mentioned in the European intervention notice concerned may not be taken into account in determining whether anything operates, or may be expected to operate, against the public interest.

(4) Provision made under subsection (1) shall include provision—

(a) applying with modifications sections 22 to 31 (read together with section 33) for the purposes of deciding for purposes of this section whether a relevant merger situation has been created or whether arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation;

(b) requiring the OFT to make a report to the Secretary of State before a reference is made;

(c) enabling the Secretary of State to make a reference to the Commission;

(d) requiring the Commission to investigate and report to the Secretary of State on such a reference;

(e) enabling the taking of interim and final enforcement action.

(5) An order under this section may include provision (including provision for the creation of offences and penalties, the payment of fees and the delegation of functions) corresponding to any provision made in, or in connection with, this Part in relation to intervention notices or special intervention notices and the cases to which they relate.

(6) In this section "European intervention notice" has the same meaning as in section (European mergers: intervention to protect legitimate interests)."

On Question, amendments agreed to.

Clause 67 [Water mergers]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 64:

Page 51, line 42, at end insert—

"(4) Where two or more enterprises have merged or will merge as part of transactions or arrangements which also involve an actual or prospective merger of two or more water enterprises, Part 3 of the 2002 Act shall apply in relation to the actual or prospective merger of the enterprises concerned excluding the water enterprises; and references in that Part to the creation of a relevant merger situation shall be construed accordingly.

(5) Subject to subsections (3) and (4), Part 3 of the 2002 Act shall not apply in a case in which the OFT is required to make a reference under section 32 above except as applied by virtue of Schedule 4ZA."''.

On Question, amendment agreed to.

Clause 71 [Effect of undertakings under section 70]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 65 to 67:

Page 54, line 30, after "undertaking" insert "or group of undertakings"

Page 54, line 32, after "undertaking" insert "or group of undertakings"

Page 54, line 36, leave out "the" and insert "any"

On Question, amendments agreed to.

Schedule 7 [Provision of information and advice to Ministers etc.]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 68 to 70:

Page 217, line 37, after "undertaking" insert "or group of undertakings"

Page 217, line 41, after "undertaking" insert "or group of undertakings"

Page 218, line 1, leave out third "the" and insert "any"

On Question, amendments agreed to.

Schedule 8 [Promoting good consumer practice]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 71:

Page 228, line 38, at end insert—

"(4) An order may—

(a) make different provision for different cases or classes of case or different purposes;

(b) make such transitional, transitory or saving provision as the person making it considers appropriate."

On Question, amendment agreed to.

Schedule 10 [Part 2 of the 1973 Act]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 72:

Page 246, line 24, leave out "revokes an order under that enactment" and insert "is a revoking order of the kind dealt with by paragraphs 6 to 8 below"

On Question, amendment agreed to.

Clause 94 [Section 94: supplementary]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 73 and 74:

Page 70, line 13, leave out "or is" and insert "(but is not yet"

Page 70, line 21, leave out from "Kingdom" to end of line 22.

On Question, amendments agreed to.

Clause 104 [Further publicity requirements]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 75:

Page 79, line 6, after "shall" insert "(after the acceptance of the undertaking or (as the case may be) the making of the order)"

On Question, amendment agreed to.

Clause 106 [Attendance of witnesses and production of documents etc.]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 77:

Page 81, line 37, leave out from "earlier," to end of line 39 and insert "the day on which the report of the Commission on the reference concerned is published (or, in the case of a report under section 49 or 64, given) or, if no such report is published (or given) within the period permitted for that purpose by this Part, the latest day on which the report may be published (or given) within the permitted period."

On Question, amendment agreed to.

Clause 117 [Review of decisions under Part 3]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 78:

Page 86, line 14, at end insert—

"( ) For this purpose "any person aggrieved" shall mean any person who is a party to the relevant merger situation or special merger situation."

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, when I first read what is now Clause 117, entitled "Review of decisions", I could not quite believe what the Government propose, which is that "any person aggrieved" by a decision of the Office of Fair Trading may apply to the Competition Appeal Tribunal for a review of that decision. As I have already said, this is one of the most damaging clauses in this entire part of the Bill. Just to check that I have not been subject to an idiosyncratic quirk, I have consulted widely outside the Chamber. I discovered that that is also the view of an overwhelming proportion of business and commerce. In particular, in the view of the Confederation of British Industry, it is one of the most damaging clauses in this entire part of the Bill.

However, I then turned my attention to government Amendment No. 79. Whereas I was going to say that there is a safeguard because "any person aggrieved" does have to comply with a three-month time limit, I found to my horror that the Government propose to remove even that safeguard so that at any time "any person aggrieved" may apply to the Competition Appeal Tribunal for a review of the decision.

I am well aware that sitting on the Government Front Bench are people who know a great deal about business and commerce. I find incredible the idea that they would be party to legislation that will allow "any person aggrieved" to apply for a review, especially now that we have that safeguard removed. In future, it will mean that parties whose mergers are approved will not have a definite ruling but will instead face the risk that someone somewhere will appeal. Of course, as with any appeal, there is the opportunity for success. This will cause huge, unnecessary uncertainty to business and risks undermining the competition focus of merger control by potentially placing excessive reliance on the views of others.

I suppose that the Minister will say that the only people aggrieved will be competitors. But given that competition law is about protecting competition and not competitors, that surely is entirely appropriate. This issue is not resolved by the wording in paragraph 11 of Schedule 4, Part 2, which deals with tribunal rules. These proposed rules are permissive in nature and not adequately restrictive of the persons who may apply for a review. Of course it is accepted that it will always be open to a third party to seek judicial review under established procedures, but the lack of such actions in the past shows that the risk of successful challenge is very small and that it is seen as such in the market-place. But this clause now opens the way for third party challenges; it opens the door. I give way.

Photo of Lord Borrie Lord Borrie Labour

My Lords, I thank the noble Lord for giving way. I wonder whether the problem is being exaggerated. If one refers to subsection (6) of Clause 117, one reads that the application is confined to grounds on which judicial review could be sought. The noble Lord will no doubt also speak to Amendment No. 80 on this very subject. But only if he is successful with that amendment would the alarm that he is expressing be justified. If the application is confined to judicial review grounds as set out in subsection (6), does not a good deal of what the noble Lord has been speaking about fall to the ground?

Photo of Lord Ampthill Lord Ampthill Crossbench

My Lords, if the noble Lord would not mind, I think I should put the amendment that has been moved before he continues, which we shall wait anxiously for him to do—

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative 9:30 pm, 15th October 2002

My Lords, I believe that I was giving way to the noble Lord, Lord Borrie. If I may, I should like to continue to address the House for a little while longer.

I have the good fortune to be senior partner of a firm of solicitors that specialises in judicial reviews. Therefore, I am well aware of the situation as explained by the noble Lord, Lord Borrie. However, it is no restriction when one is allowing anybody to make an application for judicial review and, indeed, encouraging anybody who believes that he is aggrieved—not just any corporate body, but any person who is aggrieved. What one needs is certainty. I suppose that I am now referring back to the 16 years when I had the honour and privilege of being a member of successive governments. Judicial review is something of a nightmare for Ministers. It can result in hugely important decisions being delayed and enormous costs being incurred, which is just part and parcel of the democratic/judicial process.

Judicial review is a procedure to which Ministers are subjected. Perhaps I may explain to the noble Lord, Lord Borrie, that it is not here a question of judicial review of a ministerial decision. As the clause is drafted—the noble Lord rightly points out that I shall seek in a moment to amend that part of the clause—anyone can go through those enormously complex processes of judicial review if he is aggrieved by a decision of the OFT. It widens hugely the basis for judicial review.

Outside business and commerce were somewhat horrified by the clause. The Minister has removed even the safeguard that anyone aggrieved would have to make an application within three months. A person who feels aggrieved can apply for judicial review at any time. That imposes enormous uncertainty in a complicated process.

I am grateful to the noble Lord, Lord Borrie, for trailing what I shall now say. I seek to leave out subsection (6) and in Amendment No. 80 insert the words on the Marshalled List. I do so only in these circumstances. If the Minister is not disposed to accept Amendment No. 80 I do not wish to change the existing wording in subsection (6). I believe that the Minister should accept Amendment No. 80. Then judicial review becomes something of the past. The clause then provides that the test for review of a merger decision should be the same as that applied in judicial cases; that is, concerned more with matters of procedure than of substance. If Amendment No. 78 were accepted,

"'any person aggrieved' shall mean any person who is a party to the relevant merger situation or special merger situation".

Only if Clause 117(1) is amended as suggested in Amendment No. 78 would I wish the Minister to amend Clause 117 so that any appeal could consider also the substantive merits of the decision. Judicial review is a narrow focus. It can be time consuming, particularly when it is brought by a member of the public. I shall not mention the cases but I speak with the scars of months of delay caused by one single, aggrieved person testing a ministerial decision. It is too narrow a basis for review of what are substantive economics-based findings and is inconsistent with the position under the 1998 Act under which decisions may be appealed on their merits. A right of appeal on the merits to a tribunal which is skilled in competition law would represent a necessary safeguard in those cases where economic analysis and legal principles have been incorrectly applied by an administrative body. As a case in point, perhaps I may mention the European Commission's conduct of the Airtours case. Amendment No. 80 is based on the assumption that the Government will accept Amendment No. 78. I beg to move.

Photo of Lord Ampthill Lord Ampthill Crossbench

My Lords, Amendment No. 78 has now been moved. The noble Lord has, of course, spoken to Amendment No. 80, which is grouped with it.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, at almost every stage of the Bill's progress we have discussed the issue of whether there should be a full appeal on merits in merger cases. At every stage, we have put the case that judicial review was, and remains, the appropriate basis for reviewing decisions taken in merger investigations. One of the reasons why we keep coming back to the matter is that the Opposition have still not recognised just how effective a judicial review-type appeal would be in holding the competition authorities to account for their actions.

I shall give some examples. If the OFT or the Competition Commission misinterpreted their duties under the Enterprise Act, they would be caught by a judicial review-type appeal. If a panel of the Competition Commission failed to observe due process, such as failing to comply with the chairman's procedural rules, and that amounted to a material procedural unfairness, a judicial review-type appeal would cover that. If the OFT or the Competition Commission had, to a material extent, based a decision on an incorrect factual assessment of the conditions of competition in a market affected by a merger, the appeal mechanism that we propose would, again, catch that. If the authorities acted unreasonably, if their decision fell outside the range of conclusions that could reasonably be reached on the evidence before the competition authorities or if the remedies were disproportionate in the circumstances, a judicial review-type appeal would pick that up.

The right of review therefore provides a high level of protection for the parties—more, perhaps, than noble Lords might have realised, although the noble Lord, Lord Hunt of Wirral, will be aware of the situation, given the work that he has done. It is also sufficient to protect their rights under the Human Rights Act 1998. We recognise that a full right of appeal, as envisaged, would go even further in allowing the parties to revisit all the issues discussed during a merger investigation and to hold a full hearing of the merits of the case. However, as we have said before, that is not the best way to deal with such decisions.

The problem, as we have tried to explain on numerous occasions, is that there is no right or wrong answer on whether a merger should be allowed to go ahead. Two groups of competition experts looking at the same merger situation could well come to different conclusions as to whether there was a competition problem and what the remedies should be. That means that a full rehearing would merely substitute one set of views for another, which may or may not make for a more just outcome. The more workable appeal mechanism is one that considers whether the decision was reasonable and was based on a fair process.

The right to bring an action should be open to more than just the parties to the merger in question. Some third parties—for example, customers, suppliers and competitors—may have an interest in a case and should, therefore, have access to the tribunal. However, we are keen to prevent frivolous or vexatious applications or those from parties with no direct interest in a case. That is why Schedule 3 provides that tribunal rules may be made to allow the Competition Appeal Tribunal to reject proceedings if it considers that the person instituting them does not have a sufficient interest in the decision or has disclosed no valid grounds for bringing the proceedings. The tribunal will also be able to reject proceedings that it considers vexatious. A time-limit will be specified in the tribunal's rules. We are consulting on the length of time, but it will be three months or less. We have removed that from the clause to avoid confusion.

We are also aware that any limit that we place on the scope of any review mechanism in the Bill will not affect the rights of third parties to seek judicial review of decisions in the High Court. We should, therefore, create a two-tier system, in which merger parties would have access to the tribunal, while third parties relied on the High Court. We cannot stop the judicial reviews taking place; the only question is whether we create a two-tier system.

In general, I am surprised that the noble Lord is pushing so hard for full appeal. I should have thought that, from a business perspective, full appeal would be more of a concern. It could well cause delays and add to the costs; it would create a two-tier approach, with third parties relying on judicial review through the courts; and it would not necessarily always lead to what the parties would regard as a more just outcome.

Finally, the review mechanism should not be seen in isolation. It needs to be assessed alongside the wide array of safeguards we are introducing to strengthen decision-making; the new requirement on the Competition Commission to have clear procedural rules; greater transparency requirements, including the publication of reasons for decisions; and other safeguards, such as the two-thirds voting requirement for key decisions. Backed by these, we are convinced that a judicial review type appeal mechanism is the right one. It leaves the taking of these complex decisions to the competition authorities, which will build up a body of expertise in the effective discharge of their functions. It leaves the tribunal to become expert at policing their decisions, ensuring that the process is fair and the outcome reasonable; and it leaves those businesses and others affected by the decisions with a clear, fast and effective mechanism for resolving any disputes. On that basis, I ask the noble Lord to withdraw the amendment.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I have listened carefully to the Minister's response. All I can deduce is that he has not yet been subjected to a judicial review of any of his decisions. The noble Lord laughs and indicates that he has not. It is good to hear that, and I admire him for it. However, he might have a word with one or two of his ministerial colleagues who have been so subjected. He might then understand better some of the points that I have sought to make.

On the point that he has made about Amendment No. 80, I am arguing for the situation as it applies under the 1998 Act, where an appeal can be on merit. With some of these highly complicated decisions, which are very much based on economics, the narrow confines of judicial review are inappropriate. I shall, of course, take time to reflect on what the Minister has said and we may return to this subject yet again. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 82 and 83:

After Clause 118, insert the following new clause—

"PRIMACY OF COMMUNITY LAW

(1) Advice and information published by virtue of section 103(1) or (3) shall include such advice and information about the effect of Community law, and anything done under or in accordance with it, on the provisions of this Part as the OFT or (as the case may be) the Commission considers appropriate.

(2) Advice and information published by the OFT by virtue of section 103(1) shall, in particular, include advice and information about the circumstances in which the duties of the OFT under sections 21 and 32 do not apply as a result of the European Merger Regulations or anything done under or in accordance with them.

(3) The duty or power to make a reference under section 21 or 44(2) or (3), and the power to give an intervention notice under section 41, shall apply in a case in which the relevant enterprises ceased to be distinct enterprises at a time or in circumstances not falling within section 23 if the condition mentioned in subsection (4) is satisfied.

(4) The condition mentioned in this subsection is that, because of the European Merger Regulations or anything done under or in accordance with them, the reference, or (as the case may be) the reference under section 21 to which the intervention notice relates, could not have been made earlier than 4 months before the date on which it is to be made.

(5) Where the duty or power to make a reference under section 21 or 44(2) or (3), or the power to give an intervention notice under section 41, applies as mentioned in subsection (3), references in this Part to the creation of a relevant merger situation shall be construed accordingly."

After Clause 118, insert the following new clause—

"POWER TO ALTER SHARE OF SUPPLY TEST

(1) The Secretary of State may by order amend or replace the conditions which determine for the purposes of this Part whether a relevant merger situation has been created.

(2) The Secretary of State shall not exercise his power under subsection (1)—

(a) to amend or replace the conditions mentioned in paragraphs (a) and (b) of subsection (1) of section 22;

(b) to amend or replace the condition mentioned in paragraph (a) of subsection (2) of that section.

(3) In exercising his power under subsection (1) to amend or replace the condition mentioned in paragraph (b) of subsection (2) of section 22 or any condition which for the time being applies instead of it, the Secretary of State shall, in particular, have regard to the desirability of ensuring that any amended or new condition continues to operate by reference to the degree of commercial strength which results from the enterprises concerned having ceased to be distinct.

(4) Before making an order under this section the Secretary of State shall consult the OFT and the Commission.

(5) An order under this section may provide for the delegation of functions to the decision-making authority."

On Question, amendments agreed to.

Clause 119 [Orders and regulations under Part 3]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 84 to 90:

Page 88, line 32, at end insert—

"(2A) The power of the Secretary of State under section (Power to alter share of supply test) (including that power as extended by subsection (2) above) may be exercised by modifying any enactment comprised in or made under this Act, or any other enactment."

Page 88, line 34, after "57(3)" insert ", (European mergers: scheme for protecting legitimate interests)"

Page 88, line 37, after "27" insert "(including that enactment as applied by section 41(5), 58(4) and (European mergers: intervention to protect legitimate interests)(7))"

Page 88, line 41, after "section" insert "(European mergers: scheme for protecting legitimate interests)",.

Page 88, line 41, after "99" insert ", (Power to alter share of supply test)"

Page 89, line 5, after "repealed" insert "(and the previous enactment revived)"

Page 89, line 7, at end insert "and without prejudice to the making of a new order"

On Question, amendments agreed to.

Clause 124 [Other interpretation provisions]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 91:

Page 92, line 13, at end insert—

""Community law" means—

(a) all the rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Community Treaties; and

(b) all the remedies and procedures from time to time provided for by or under the Community Treaties;"

On Question, amendment agreed to.

Clause 125 [Index of defined expressions]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 92 and 93:

Page 93, line 29, at end insert—

"Community law

Section 124(1)"

Page 94, line 26, leave out "Section 41(3)" and insert "Sections 41(3) and (European mergers: intervention to protect legitimate interests)(9)"

On Question, amendments agreed to.

Clause 126 [Power of OFT to make references]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 94:

Page 95, line 24, after "competition" insert "to a significant extent"

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, perhaps I may explain that on Amendment No. 79 I was reassured by the Minister's statement that this will now form part of the tribunal's rules. Although I expressed the doubt that these would only be permissive in nature, I should like to reflect further on the position. That is why we did not oppose Amendment No. 79.

Turning to Amendment No. 94, market investigations impose significant costs on business. It is important that they are initiated only where there are sound reasons to believe that there is a significant adverse effect on competition. I emphasise the word "significant". That is a principle which is commonly found in UK and EC competition law. Without this change, conduct outside the market concerned could be grounds for making a reference, and any effect, however minor, can be referred by the OFT.

The Government seem to agree that only important cases should be referred to the Competition Commission. If that is the case, I hope that the Minister will recognise that that is not reflected on the face of the Bill but it will be if he is disposed to accept this amendment. I contend that business needs clarity, and this clause does not provide it. I therefore hope that the Minister will accept this amendment, which I beg to move.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative 9:45 pm, 15th October 2002

My Lords, I support my noble friend's amendment. The use of the word "significant" is critical. I once had the dubious pleasure of being a director of a company that was being bid for by another company and which became the subject of an OFT investigation. The position of companies in victim mode, as we were, is unenviable. In trying to hold the company together, management and staff are very concerned, so such investigations are not to be entered into lightly for reasons of data-gathering or in response to political or economic pressure. The insertion of the word "significant" is entirely in keeping with the thrust of the Bill to ensure that we have a fully competitive market in this country. I hope that the Minister will look upon it favourably.

Photo of Lord Borrie Lord Borrie Labour

My Lords, I have been surprised that the noble Lord, Lord Hunt, has not produced any examples of the OFT over the years failing to comply with what he wants; that is to say that investigations are sought and references made only when it is likely that competition will be restricted "to a significant extent". He wants those words on the face of the Bill, yet only a few moments ago he expressed concern on behalf of those who might be subject to judicial review that it can be a painful process. The only effect of inserting "to a significant extent" would be that the OFT would proceed as it invariably has done, namely in line with the sensible policy that the noble Lord advocates, but it would face a greater possibility of judicial review if someone wanted to argue about the precise meaning of those words in a precise situation.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, the trouble with having the noble Lord, Lord Borrie, on one's side on these matters is that all the best lines are taken before one can speak. He put the point extremely well.

Amendment No. 94 provides that the OFT may make a market investigation reference only when it has reasonable grounds to suspect that one or more features of market prevents, restricts or distorts competition in the UK market to a significant extent. We have made it clear in both this House and the other place that we intend that market investigations should be used only to pursue potentially significant competition problems. For its part, the OFT states clearly in its draft guidance on making market investigation references that it will take account of the scale of any suspected adverse effects on competition and the extent to which they are likely to have significant detrimental effects on customers before making a reference. The draft guidance goes on to outline some of the factors that the OFT will take into account when deciding whether a reference is an appropriate response to the apparent scale of any competition problem; for example, the size of the market and the proportion of the market affected by the feature giving rise to the adverse efforts.

In our view, it would be unreasonable for market investigation references to be used to look at trivial competition policy, there is no reason to suppose that the OFT will attempt to use them in such a way, and nothing would be gained by referring explicitly to the "significance" of potential adverse effects in Clause 126.

I reiterate the two important points that the noble Lord, Lord Borrie, made. No evidence has been given that the OFT's role has been abused in the past, therefore there is no reason to suppose that it will be in the future. I am not certain that to introduce "to a significant extent" would add any clarity, but it would leave more room for debate, argument and judicial review. On that basis I ask the noble Lord to withdraw the amendment.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, it is curious that the noble Lord, Lord Borrie, argues that it is unnecessary to include the word "significant" in the Bill because that has always been the way in which the OFT has operated. We are dealing with a new body and with legislation that will stand for a significant time. It is important to ensure that the good practices of the past continue into the future.

The noble Lord says that it would give additional ammunition to the lawyers who no doubt would be seeking judicially to review the decision. However, surely it is important to have on the face of the Bill the situation as it is and as it ought to be and to leave whatever the processes—I failed to persuade the Minister as to the correct process—to take their course if they are called into effect.

I agree with my noble friend Lord Hodgson of Astley Abbotts that it is important to ensure that, as the noble Lord, Lord Borrie, described it, the practice of the past continues into the future. However, I shall reflect not only on all the best lines, which the Minister seemed to believe were possessed by the noble Lord, Lord Borrie, but on his comparatively good lines. I shall go away and think further and, in the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Liberal Democrat

moved Amendment No. 95:

Page 95, line 26, at end insert—

"( ) In considering the making of a reference under subsection (1) affecting the regulation or obligations of the legal profession the OFT shall have regard to the duties of lawyers in relation to the sound administration of justice and to the interests of consumers of legal services and of those lacking the same."

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Liberal Democrat

My Lords, first, I must declare an obvious interest as a solicitor. Amendments Nos. 95, 102 and 105 are relevant to the legal profession. Similarly, the noble Lord, Lord Brennan, who is unavoidably absent, was a former chairman of the Bar Council. It is relevant to point out that the Bar Council and the Law Society are taking an interest in the amendments, although they were tabled before that was apparent.

The overall purpose of the amendments is to give the legal profession in the shape of the Law Society, which is responsible for solicitors, and the Bar Council, which is responsible for barristers, the power to make regulations for the two professions in the public interest. They will write on to the face of the Bill allowances which would mean that anti-competitive references made under Clause 126 can be considered in the light of the special and particular position of legal services.

In turn, the amendments will allow the Competition Commission, in deciding market investigation references, to make the same allowance. Without these amendments, or something like them, there would be no power for either the OFT or the Competition Commission to have regard to the particularities and importance of legal services.

I want to comment briefly on the special nature of legal services. Lawyers pleading their own cause, pleading a special position in relation to any legislation, will be a sensitive task, but it is not we who have made the legal profession and the services it renders special. All solicitors and barristers are officers of the Supreme Court. They have special obligations with regard to the court and to justice. They have special duties and are subject to statutory discipline. They have a special role as advocates. They have special obligations to clients; for example, the cab-rank rule which applies to barristers. They are subject to special accounts rules and to special indemnity arrangements. Perhaps most importantly, they have a unique legal privilege in terms of the confidence they can maintain vis-à-vis their clients' affairs. All those aspects of the nature of the legal profession, whether solicitor or barrister, relate to the importance of their function at the heart of society; namely, in relation to the courts.

I should like to say a few words about the particular importance and nature of legal services. In a law-bound culture and an age when this place seeks daily to legislate rights for citizens, access to requisite legal services is not an optional extra—it is not any old other service. The delivery of social rights, for example, whether in terms of housing or social welfare or whatever else, is nugatory and pointless without the availability of lawyers who are both affordable and accessible geographically. Equality before the law, one of our proudest boasts, becomes a sham unless we recognise that the provision of legal services occupies a very particular position. That is the background.

I should like to refer briefly to the case of Klopp, which was heard in the European Court in 1984. This case confirmed a point that has been consistently upheld—that in the absence of specific community rules in the field, each member state is in principle free to regulate the exercise of the legal profession in its territory. Consequently, the rules applicable to the legal profession differ greatly from one member state to another, so that, for all the reasons I have mentioned, EU jurisprudence puts the legal profession into a special position. The other point is that the provisions dealt with in these amendments—Clauses 126 and 129—hark back to Article 81, formerly Article 85, of the Treaty of Rome, which is the central pro-competition section of the treaty.

We need these amendments for the following reasons, which are only illustrative. The regulatory borderline between solicitors and the Bar, maintaining the two as separate professions, is one competition issue; an issue of anti-competitive arrangements. Partnerships at the Bar currently are not allowed. Although one might regard the fact that every barrister must act on his or her own as a competitive ideal, some might say that that is an anti-competition issue. The position on partnerships between barristers and solicitors is another such issue, as is the matter of multidisciplinary partnerships between solicitors, barristers and accountants, for example. All of those are potentially anti-competition issues. Without these or similar amendments, we cannot address those issues in a manner that pays proper regard to the circumstances of the UK legal profession and the particular circumstances of the client.

Each of the three amendments in this group deals expressly with the issue of availability. At the end of Amendment No. 95, for example, we talk not only about the interests of the consumers of legal services, but about "those lacking the same". The same wording is used in Amendment No. 102. The words that Amendment No. 105 proposes will enable the Competition Commission, in considering a market reference from the OFT, to have regard not only to the possibility of a detrimental effect on the price of legal services, the quality of legal services and the choice of legal services, but also to the availability of legal services. One might think that that is a quibble, but it is not. One is not a consumer of anything if one cannot purchase the item to be consumed.

As we know, legal services in this country are, like those in other countries, hugely expensive. The legal aid scheme, sadly, is being run down. The truth is that an increasing minority of our population are not consumers of legal services when they need them because those services are not in truth available. The question of availability is central to these three amendments and central also to the current disposition of legal services between small and medium-sized, cheap high street solicitors firms on the one hand and, on the other, a populous Bar with a cheap end.

I shall not say more than that as the issues are complex. However, I considered that I needed to illustrate why the amendments are necessary. It is not a question of prejudging the issues but merely of allowing them to be properly judged when the time comes, if the time comes, by the Office of Fair Trading and, indeed, by the Competition Commission.

Finally, I am reluctant to drag in another European Court case at this time of night but I believe that it is necessary. I refer to the case of Wouters which was decided in February of this year. That case made abundantly clear that as regards Article 81—formerly Article 85—the key anti-competitive provision, so long as the domestic legislation of the member state involved allows, the court can take account of these public interest factors. I have short-handed the key elements of the Wouters decision in mentioning in my amendments the,

"duties of lawyers in relation to the sound administration of justice and to the interests of consumers of legal services and of those lacking the same".

In order more vividly to explain why Wouters is relevant, I wish to quote from paragraph 97 of the judgment. The case involved the refusal of the Netherlands Bar to allow multidisciplinary partnerships. The European Court at the highest level upheld that anti-competitive—as some would say—provision because, as it stated,

"account must first of all be taken of the overall context in which the decision of the [Netherlands Bar] was taken or produces its effects".

It is crucial that we consider the whole context, social as well as economic. The judgment continues,

"More particularly, account must be taken of its objectives, which are here [in the Wouters case] connected with the need to make rules relating to organisation, qualifications, professional ethics, supervision and liability, in order to ensure that the ultimate consumers of legal services and the sound administration of justice are provided with the necessary guarantees in relation to integrity and experience".

I hope that I have not wholly confused the House in trying to explain a none-too-easy set of amendments. I also hope that the Government will be sympathetic to the purpose of the amendments which I assure the Government is not driven by a professionally self-interested motivation. I beg to move.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation) 10:00 pm, 15th October 2002

My Lords, I am grateful to the noble Lord, Lord Phillips of Sudbury, for raising in these amendments issues which are of great importance not only to members of the legal profession but also to society as a whole. The sound administration of justice and the promotion of access to justice are matters of the utmost concern to this Government, as, of course, is the promotion of competition. I wish to quote from a consultation document recently issued by the Lord Chancellor's Department in response to the work which the OFT has been doing on competition in the legal and other professions:

"The Government starts from two propositions. First, the professions should be fully subject to competition law and unjustified restrictions on competition should be removed. Second, when considering competition in the legal professions, the need to keep clearly in view the public interest in maintaining an independent, honest and diverse profession and ensuring the protection of consumers, while encouraging healthy competition to promote new, better and affordable services and wider consumer choice".

The amendments relate to the considerations that the OFT should bear in mind when making any market investigation reference relating to the legal profession, to the circumstances in which the Competition Commission may make a finding of adverse effects on competition when considering such a reference and, where there is such a finding, on the definition of customer benefits that may be held to outweigh such adverse effects. I shall deal with each of those in turn.

As regards any future reference decision affecting the legal profession, the amendment requires the OFT, in essence, to take account of the non-competition-related public interest considerations which underlie the regulation of that profession. The noble Lord, Lord Phillips, is concerned that in its zeal to promote competition, the OFT may initiate a process that could be damaging to the administration of justice and the ultimate interests of consumers. Those concerns are entirely proper, but in my view they are unfounded.

Some rules that regulate the provision of professional services clearly restrict competition in the provision of such services, but are so essential to other aspects of the public interest that one would not expect the OFT to found a market investigation reference on them. For example, the importance of ensuring that professional services are supplied only by those properly qualified to supply them clearly outweighs the restrictions on competition that result from rules requiring doctors or lawyers to be properly qualified. Of course, one may take issue on the question of whether particular qualifying requirements laid down by the regulatory bodies are justified in those terms, but the basic principle is beyond dispute.

Suppose, then, that the OFT was considering the effects on competition of certain Law Society rules, and believed that the restrictions that exist on solicitors entering into partnership with accountants significantly restricted competition. The OFT might take the view, as the Court of Justice did in the Wouters case, that a complete ban on the formation of such partnerships was a reasonable way of maintaining the integrity of the legal profession. On the other hand, it might take the view that it was at least worth exploring in more detail whether there was not some less absolutely restrictive means of achieving the same goal; in other words, whether strict rules governing the conduct of solicitors who entered into such partnerships would not adequately safeguard the interests of clients and the sound administration of justice.

I stress that I cite that as a hypothetical example and that I have no wish to be drawn into a discussion of the competition or public interest effects of any existing professional rules. What matters, I believe, is that that is the kind of thought process that we would expect the OFT to go through with regard to Clause 126 as currently drafted. There is no need for Amendment No. 95, any more than there is any need to include in Clause 126 a provision explicitly permitting the OFT to take account of relevant customer benefits generally when making a reference decision. The power to make market investigation references necessarily involves the exercise of a wide-ranging discretion to take into account all matters that it is reasonable to take into account in the circumstances of any particular case. Given the many markets and issues within those markets that the OFT may have occasion to consider under this legislation, we believe that making special provision for what it should consider in one particular market or in relation to one particular profession, or even specifying that certain matters should be considered in all cases, would call the breadth of the OFT's discretion as regards other matters into question.

Moreover, as the OFT makes clear in its draft guidance, when it is considering making a market investigation reference, it will have particular regard to the suitability of a reference as against other investigation or enforcement options, and to the availability of remedies through the market investigation process to any competition problems that it perceives in the market concerned. While we would not wish to prejudge the decisions that the OFT might make in any future proceedings involving rules governing the provision of legal services, there are at least reasons to doubt whether a market investigation reference is likely to be a useful way of dealing with such matters. Those rules are generally made either by statute or by professional associations with a regulatory function, such as the Law Society. Statutory rules that the OFT could address by making its own report and recommendations to government under Clause 7, or any recommendations to change such rules—whether made by the OFT or by the Competition Commission following a reference—would have to be interpreted by the Government in the light of other public interest concerns, such as the administration of justice.

On the other hand, rules made by a professional association may well amount to a "decision of an association of undertakings" within the terms of Article 81 of the EC treaty or Section 2 of the Competition Act 1998. They would thus be more appropriately dealt with by a consideration under the relevant EC law or the Competition Act.

I turn now to the amendments to Clause 129. Let us suppose that the OFT has referred one or more markets for legal services to the Competition Commission and that the commission is considering certain regulatory provisions which restrict competition. If those provisions are imposed by law or are required in order to comply with a legal requirement, it will be for Ministers or those responsible for the requirement to decide whether to implement any recommendations for change which the commission may make. If not, first, the commission will have to consider whether they should be examined by the OFT rather than by itself on the basis that they may be decisions of association of undertakings. Such decisions should be considered either under Article 81, where they affect inter-state trade and where the so-called "modernisation" of EC competition law has given the OFT the power to apply Article 81, or under the Competition Act 1998, where they do not affect inter-state trade.

Alternatively, there may be cases where the Competition Commission should assess the matter further. However, in that event, whether or not a rule is found to have an adverse effect on competition and whether or not it is within the legal power of the commission to do anything about it, we believe that there would be ample scope to consider the public policy justifications for such a rule under the customer benefits provisions.

Ultimately, the sound administration of justice is inseparable from the quality of the legal services provided. Quality is one of the set of relevant customer benefits which may, in so far as they result from a feature of a market which prevents, restricts or distorts competition, outweigh an adverse effect on competition.

The last amendment in this group—Amendment No. 105—proposes to qualify the reference to "choice of goods or services" in the context of detrimental effects on customers by adding a reference to the "availability" of goods and services. I do not consider that to be necessary. If particular services are less available to customers than they might otherwise be, that must be because the total supply of such services is limited, or because the variety of types of such services is limited, or because the number of different providers of such services is limited.

All those possibilities are covered by the existing drafting. A restriction in total supply will result in higher prices, while restrictions in the types of service available or the number of suppliers on the market are both covered by the concept of choice. Therefore, we do not believe that the amendment adds anything of substance to Clause 129(5).

I hope that the noble Lord will accept that we have considered this issue very carefully. However, we believe that there is currently sufficient within the legislation to protect the whole issue of equality of legal services and the access to them. Therefore, there is no need for the amendments because what they seek to achieve is already built into the legislation.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Liberal Democrat

My Lords, I am most grateful to the Minister for his extremely careful and detailed response. I hope that he will forgive me if I do not respond instantly to all that he has said. I, along with other people, will consider it very carefully. If necessary, we shall return and, if necessary, we may come to the Minister to talk about certain matters. However, in the meantime, I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 96 and 97:

Page 95, line 31, leave out ", in the course of business,"

Page 95, line 34, leave out ", in the course of business,"

On Question, amendments agreed to.

Clause 127 [Ministerial power to make references]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 97A:

Leave out Clause 127

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, this amendment seeks to remove the ability of the Minister to make references to the commission. This matter was debated in Committee.

The noble Lord, Lord Sainsbury, stated that the prime aim of the Bill is to take Ministers out of the final decision-making process in competition cases. We accept that, with the exception of public interest criteria, that has been done for market investigations and mergers.

Clause 127, of course, only gives the appropriate Minister the power to refer to the Competition Commission. We nevertheless believe that there is a serious risk of politically motivated references, requiring companies and bodies to incur considerable expenditure. All references should be left to the expert competition body. I beg to move.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation) 10:15 pm, 15th October 2002

My Lords, it has been clear for some time that there is a difference of views on Clause 127, which we see as providing a sensible backstop provision—a reserve power to be used in exceptional circumstances. Others have portrayed the clause as contradicting a policy pursued in the Bill of taking Ministers out of decision making in competition cases.

Ministerial references are permitted under the Fair Trading Act 1973 and monopolies regime but have only been made rarely. We do not expect that they would be a more regular feature of the operation of the new regime. Primary responsibility for considering possible references and deciding what references to make lies with the OFT and those sectoral regulators with the relevant concurrent powers.

We expect that only very rarely will Ministers have reasonable grounds to be dissatisfied with a decision of the OFT not to make an investigative reference or with the speed or apparent failure of the OFT in reaching a decision one way or the other on a possible reference. It would be imprudent, however, to assume that such circumstances will never arise or, given the complexity of the economic issues that can arise in potential market investigation cases, that both the OFT and a Minister who disagrees with an OFT decision may not have valid points of view. In such a borderline case, it is appropriate that the Competition Commission should look at the matter thoroughly, rather than risk potentially significant competition problems going uninvestigated.

In no sense is the role that we are proposing for Ministers determinative. They are merely being given the right to ask a question. The valid exercise of that right depends on Ministers having a reasonable and reasoned economic assessment of competition in the market or markets concerned. Ultimately, all reference decisions will stand or fall not on their political merits or demerits but on the economic justification. If Ministers make an unreasonable market investigation reference, they will—like the OFT—be open to the possibility of challenge before the CAT. Their decision and the reasoning behind it will have to be capable of withstanding that level of scrutiny if a ministerial reference is to be validly made. Any ministerial reference decision would no doubt receive some degree of publicity. As Ministers will be accountable to Parliament in respect of such decisions, they would be expected to defend them in Parliament.

On that basis, the power is justified and does not contradict the policy pursued in the Bill of taking Ministers out of decision making in competition cases. I ask the noble Lord to withdraw the amendment.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I am partially reassured by the noble Lord the Minister. He indicated that the circumstances would be rare, indeed, in which the power to intervene would be exercised. I wonder whether the Minister can go further and speculate on the kind of circumstances in which he would expect this rarely exercised power to be used.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, I cannot really add anything. There may be situations where there is disagreement by the Secretary of State, who ultimately may feel that there is a competition issue that needs seriously to be examined. The key issue is that the clause offers the possibility only of making a reference—it is not determinative. There are no circumstances in which Ministers would not take great care in making references. Because they might be thought to be political, Ministers would be carefully scrutinised. Unless the references can withstand the review which takes place by the Competition Commission, they will fall and in that case will not be valid. The fact that it is not determinative—it is the power only to make a reference—should give everyone security that this power will be rarely used: only where the Secretary of State feels strongly that a competition situation has not been properly considered.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I am grateful for that further explanation by the Minister, which has helped me to understand the circumstances in which the noble Lord foresees the power being exercised. I shall reflect on his comments. Meanwhile I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 128 [Contents of references]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 98 and 99:

Page 97, line 16, after "persons" insert "by or"

Page 97, line 16, after "or" insert "by or"

On Question, amendments agreed to.

Clause 129 [Questions to be decided on market investigation references]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 100:

Page 97, line 21, after "market" insert "significantly"

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, we now turn to the determination of references and to the questions to be decided on market investigation references. Here we return to the word "significant". I suppose I could go away satisfied with the words of the noble Lord, Lord Borrie, that one should read in the word "significant" because that describes the attitude of mind of the previous regime in that it would not seek to decide a matter unless it was a significant measure which restricted, distorted or prevented competition.

However, it would be a great reassurance to the world of business and commerce if the word "significantly" could appear in Clause 129(1) as is suggested by Amendment No. 100, after the word "market", so that it would read:

"The Commission shall, on a market investigation reference, decide whether any feature, or combination of features, of each relevant market significantly prevents, restricts or distorts competition".

I believe that without that qualifier on the face of the Bill the commission would have to decide the issue no matter how minimal the effect on competition, which would be an unreasonably wide test.

Subsection (2) contains the definition of the phrase "adverse effect on competition", which is used throughout Part 4. Here, again, Amendment No. 101 seeks to insert the word "significantly" after the word "market", to read:

"For the purposes of this Part, in relation to a market investigation reference, there is an adverse effect on competition if any feature, or combination of features, of a relevant market significantly prevents, restricts or distorts competition".

Subsection (5) reads:

"For the purposes of this Part, in relation to a market investigation reference, there is a detrimental effect on customers".

Amendment No. 103 would insert the word "significant", to read:

"there is a significant detrimental effect on customers".

The subsection then continues to explain the circumstances in which that would be found.

I believe that that change is also needed to prevent insignificant effects driving action which would be costly and burdensome for business. I hope that the Minister will accept the amendment. I beg to move.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

My Lords, I support my noble friend. Noble Lords will probably have received the CBI's briefing on this point—certainly the Minister's officials will have—about how this meshes with the European Court of Justice's decisions and the implications drawn from a number of cases that the CBI describes as John Deere, New Holland-Ford and the 1999 Italian banks case, where it was decided that where restrictive agreements have an insignificant effect on competition they fall outside the prohibitions.

The CBI draws attention to the publication last year of the

"Commission Notice on agreements of minor importance which do not appreciably restrict competition under Article 81(1) . . .".

The CBI makes the powerful case that a de minimis test is an important principle of competition law, helps to free businesses from regulatory burden and gives them some security that small-scale activities will not be subject to investigation. I therefore support my noble friend and I hope that the Minister, seeing that it will mesh closely with the decision of the European Court of Justice, will see fit to accept the amendments.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, these amendments share a common theme with Amendment No. 94, except that Clause 129 is concerned not with a threshold for investigation but with the final finding by the Competition Commission of adverse effects on competition and any detrimental effects on customers arising from them.

There are two aspects to these findings: they are the formal record of the competition problems which the commission has found in its investigation, and they trigger the Competition Commission's duty to take remedial action.

It would not be right to limit the formal conclusions of the commission's economic analysis of the markets which it has investigated to setting out only those adverse effects or detrimental effects which the commission considers "significant". These are lengthy and detailed investigations, and the commission should reach formal conclusions on the existence of any adverse effects on competition, or detrimental effects on customers which it has found.

It has long been recognised that the published analysis provided by Competition Commission reports has an importance independent of any remedial action taken as a result of that analysis, and it would not be appropriate to blunt the sharpness of that analysis by excluding some of its conclusions by reference to some criterion of "significance".

With regard to remedial action, I agree that the commission should not intervene in markets without adequate justification. But we believe that the way the commission's duty to remedy is framed provides an adequate safeguard against excessive regulatory interference. The commission's remedies must be "reasonable and practicable". As the commission has recognised in its draft guidance on market investigations, a remedy cannot be reasonable if it is not proportionate to the magnitude of the adverse effects on competition or detrimental effects on customers that it addresses.

That means that it is possible for the commission to find that a particular adverse or detrimental effect is so negligible that no proportionate remedy can be found to address it—and so leave it unremedied. On the other hand, if a remedy can be found which is proportionate to some relatively minor adverse or detrimental effect, by virtue of being sufficiently unintrusive, and having a sufficiently low implementation cost, we think it right that the adverse or detrimental effect should be remedied. There is no need for "significance" to be included in either aspect and therefore no need for the amendments.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I thank my noble friend Lord Hodgson of Astley Abbotts for his supportive words. We are facing a difficult and slightly paradoxical situation where the Minister seeks to reassure us that there is no need to insert the word "significant" because the commission would go down this road only if there was a significant effect. Therefore, I ask myself—probably too simplistically—why "significant" cannot be inserted.

However, the Minister has sought to reassure me about the proportionate effects and the proportionate situation which would govern the way that the commission would operate. I shall take time to reflect on what he has said. But I say once again that there are some strong views held outside this place that instead of implying the word "significant", it should be expressly on the face of the Bill. As I said, I shall take time to consider. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 101 to 103 not moved.]

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 104:

Page 98, line 12, after "customers" insert "or future customers"

On Question, amendment agreed to.

[Amendment No. 105 not moved.]

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 106:

Page 98, line 27, after "customers" insert "or future customers"

On Question, amendment agreed to.

Clause 133 [Duty to remedy adverse effects]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation) 10:30 pm, 15th October 2002

moved Amendment No. 107:

Page 101, line 12, leave out paragraph (a) and insert—

"(a) no detrimental effect on customers has resulted from the adverse effect on competition; and"

On Question, amendment agreed to.

Clause 135 [Intervention notices under section 134(1)]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 108 and 109:

Page 102, line 23, at end insert—

"(1A) Where the Secretary of State believes that it is or may be the case that two or more public interest considerations are relevant to the case, he may decide not to mention in the intervention notice such of those considerations as he considers appropriate."

Page 103, line 16, at end insert—

"(6) In subsection (5)(d) the reference to the acceptance of the undertaking concerned or the making of the order concerned shall, in a case where the enforcement action under section 142(2) involves the acceptance of a group of undertakings, the making of a group of orders or the acceptance and making of a group of undertakings and orders, be treated as a reference to the acceptance or making of the last undertaking or order in the group; but undertakings or orders which vary, supersede or revoke earlier undertakings or orders shall be disregarded for the purposes of subsections (4)(g) and (5)(d)."

On Question, amendments agreed to.

Clause 142 [Remedial action by Secretary of State]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 110 to 112:

Page 107, line 11, at end insert "; and

(b) has published his decision within the period required by subsection (3) of that section."

Page 107, line 19, leave out "resulting" and insert "it has resulted from, or may be expected to result"

Page 107, line 41, leave out from beginning to second "and" in line 43 and insert "no detrimental effect on customers has resulted from the adverse effect on competition"

On Question, amendments agreed to.

Clause 143 [Reversion of the matter to the Commission]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 113 to 115:

Page 108, line 3, after "make" insert "and publish"

Page 108, leave out line 8.

Page 108, line 13 after "137" insert "(if still unpublished)"

On Question, amendments agreed to.

Clause 144 [Intervention notices under section 134(2)]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 116:

Page 109, line 13, at end insert—

"(1A) Where the Secretary of State believes that it is or may be the case that two or more public interest considerations are relevant to the case, he may decide not to mention in the intervention notice such of those considerations as he considers appropriate."

On Question, amendment agreed to.

Clause 148 [Specified considerations: Part 4]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 117:

Page 111, line 15, leave out "adding to" and insert "specifying in this section a new consideration or"

On Question, amendment agreed to.

Clause 149 [Undertakings in lieu of market investigation references]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 118:

Page 112, line 4, leave out paragraph (a) and insert—

"(a) no detrimental effect on customers has resulted from the adverse effect on competition"

On Question, amendment agreed to.

Clause 151 [Effect of undertakings under section 149]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 119 to 122:

Page 113, line 38, after "undertaking" insert "or group of undertakings"

Page 113, line 40, after "undertaking" insert "or group of undertakings"

Page 114, line 1, leave out "the undertaking" and insert "any undertaking concerned"

Page 114, line 4, leave out "the undertaking" and insert "any undertaking concerned"

On Question, amendments agreed to.

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 123:

Page 122, line 21, after "section" insert "and in sections (Regulations relating to appeals against decisions of sectoral regulators) and (Preliminary consultation on regulations),"

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I rise to move Amendment No. 123. As noble Lords know, the Bill contains some provisions which are specific to the activities of the utility sector.

The sector provides goods, services and facilities whose combined value accounts for about one-quarter of our gross domestic product. They are all heavily regulated under their own sectoral statutes by agencies which are Crown bodies: so in these industries there is effectively state control over prices, the quality of service and market conduct. There is one unique feature to the regulation of the utility sector, and that is the limited scope for appeal against regulatory decision.

Our amendments seek to remedy that situation by providing for more effective rights of appeal against the sectoral regulators. We believe that such mechanisms would encourage better decision-making by regulators because their decisions would be subject to the ultimate sanction of proper scrutiny on appeal. We also believe that this would improve the transparency and consistency of regulation and strengthen its accountability across the whole utility sector. In turn that would bring the sector more into line with the evolving principles of legal due process and fundamental fairness, improve both the credibility and legitimacy of regulatory decision-making and enhance investor confidence in the long-term stability of regulated industries.

Our concern is not about decisions that sectoral regulators may be entitled to take under their competition law powers; it is about the inadequate rights of appeal available to regulated companies against the much more extensive range of decisions taken by regulators acting under their sector-specific statutes. With only slight differences between the various industries, the current position is that challenges to such decisions or actions of a utility regulator can be mounted only in one of two ways: by forcing the referral of a disputed matter to the Competition Commission, on terms of reference drafted by the regulator alone; or via judicial review of the regulator's decision. It is increasingly clear that neither option is helpful to resolve disagreements between utility companies and their regulators.

In making that generalisation, perhaps I should make an exception for price control reviews. But even there, forcing a reference of a disputed price cap to the commission has come to be known among the industries as the "nuclear" option. That is because the aggrieved company must submit to a fresh examination by the commission of all the elements in the price cap—although many of those may not be in dispute with the regulator. Meanwhile, the introduction of collective licence modification procedures in gas and electricity has restricted the ability of those industries to have disputed issues examined by the Competition Commission.

On the other hand, judicial review can normally be used only to challenge regulators on limited grounds, such as misinterpretation of their legal powers or a failure to observe due process. It cannot be used to attack the substance of their decisions. Even challenge by way of judicial review is excluded in relation to some important types of regulatory action, such as enforcement proceedings, where sectoral statutes provide only for a so-called appeal on even narrower grounds. In most utility industries, the regulators also exercise quasi-judicial powers to determine customer-company disputes about terms of service, legislative powers to set standards of performance under virtually unchecked subordinate legislation and entrenched rights to modify parties' rights and obligations under a bewildering array of industry operating agreements and formal codes of practice.

Even where companies mount an appeal, regulators have been unwilling to accept the decisions of the appellate body. For example, during its most recent price control review, the Office of Water Services, the water industry regulator, consulted companies on a financial concept known as "broad equivalence". Put simply, that means aligning the allowance for accounting depreciation in a water company's price limits with the projected profile of its maintenance spending.

The industry opposed that approach, and two companies forced a reference of Ofwat's proposals to the Competition Commission. The commission rejected the proposals on the grounds that Ofwat had no good case for using the broad equivalence approach—not just for the two companies but in principle. However, Ofwat would not then apply that finding to all the other companies on which it had imposed the methodology, although the impact of doing so would have been materially favourable to their price limits.

In a similar vein, three years ago the Northern Ireland electricity service had to go all the way to the Court of Appeal to force its regulator to accept the findings of a public interest report by the Competition Commission about the prices that its network businesses could charge. More recently, the Office of Gas and Electricity Markets, the mainland electricity and gas regulator, also tried to ignore a finding by the commission that the public interest did not require a so-called market abuse licence condition to be inserted into generation licences. That campaign was stopped in its tracks only because the Secretary of State was unwilling to help Ofgem to impose that condition.

That last incident also revealed an unsatisfactory state of affairs concerning the cost of regulatory reference to the Competition Commission. After the commission had rejected the case for a market abuse licence condition, Ofgem sought to impose all of the costs of the commission's inquiry on the two referred generating companies—although they had roundly defeated Ofgem and although the issues involved in the reference were clearly of general relevance to the industry as a whole.

On any reasonable view of the matter, such action would have been perverse. But this was only a particularly acute example of a significant defect in the current position. For, whichever industry is involved, the regulator, besides being a party to the proceedings, also has discretion over how to allocate the costs of the reference. This approach is fundamentally flawed. It is unfair to referred companies, and it also makes the method of allocation that will be used, in any particular case, wholly unpredictable.

It seems quite wrong for such critically important industries to be regulated by agencies that are effectively able to operate in their own cause as policeman, prosecutor, judge, and jury. This almost seamless mingling of functions within one executive body appears to deny the industries the right to have their obligations determined by an independent and impartial tribunal.

I am aware that the Minister for Competition, Consumers and Markets in the DTI has already informed the Electricity Association in her letter of 22nd September that,

"it is simply not practicable to regard the Enterprise Bill as a potential vehicle for any legislation on this matter".

I find that impossible to believe. After all, the only direct legal effect of these amendments is to provide a regulation-making power that the Government could exercise at any appropriate time after consulting extensively with all relevant stakeholders in the utility sector.

In brief, deficiencies in the present regulatory treatment of the utility sector could be remedied, while also taking account of actual or potential inconsistencies between individual regulatory regimes, so as to achieve an optimal outcome for all relevant interests.

Some important procedural issues are raised here. Under the amendments, very thorough public consultation and parliamentary scrutiny are necessary before the Government are permitted to make any regulations at all. This process is set out in three proposed new clauses—Clauses 163B to 163D—which specify detailed requirements for consultation on any proposals to make regulations, the contents of the proposals document to be laid before Parliament, and the nature and duration of the process for parliamentary consideration.

The procedure to be followed under these clauses is closely modelled on that laid down in Sections 4 to 8 of the Regulatory Reform Act 2001—an Act passed by the Government. It includes provision for a published cost-benefit analysis of the effect of any proposed regulations—in other words, the Government's proposals would be subject to a formal impact assessment of the kind that the sectoral regulators persistently fail to provide for their own pet projects.

The House can, therefore, see that, in addition to specifying a robust consultation process, these special requirements are also designed to afford a substantially greater degree of parliamentary scrutiny than that which ordinary affirmative resolution orders usually receive. On this side of the House, we regard such a procedure as an essential safeguard, since, under the empowering clause, the Government would be able to amend, extend, or, indeed, repeal any relevant piece of regulated utility legislation in order to achieve the purpose of the appeals regulations.

These amendments are specifically supported by the energy and water industries, and have wider general support from other great utility industries that are equally concerned about the limitations and injustices of the existing system. We believe that a better structured appeals regime will provide the right checks and balances between regulators' discretion and companies' interests. It would deliver optimal incentives on both sides and would also address growing inconsistencies between the appeals framework in the utility sector and that in other sectors. I beg to move.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation) 10:45 pm, 15th October 2002

My Lords, I congratulate noble Lords on a brilliant and ferocious attack on the legislation produced by previous Conservative governments. The noble Lord made many telling points about the weaknesses in that legislation.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I am most grateful to the Minister. He has no doubt heard what the Conservative Party Conference has been saying about the previous Conservative government.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

My Lords, presumably this is the new Conservative government. I congratulate also the Electricity Association on this ingenious and elegant amendment. However, this is not the way to remedy any defects which may exist in the current legislation. One should be clear what one wants to do; and legislation should carry out that aim whereas permissive legislation allows a range of issues to be inserted in it.

The systems of regulation which exist in the water, electricity, gas, postal services, telecommunications, railway and air navigation sectors are of great economic importance to the UK. The decisions which the sectoral regulators in these areas take can and do have significant effects on all of us. It is important, therefore, that we achieve the best regulatory procedures we can, and to that end we have given and continue to give considerable attention to the regulatory framework, including appeal mechanisms. While we are grateful to the noble Lord for bringing to the House's attention some of the concerns raised in some sectors about the present appeal arrangements, we would prefer to look at any possible changes to those arrangements in the context of the wider regulatory issues to which they are linked and the sectors in which they operate.

We want a secure, long term, stable and effective regulatory framework. It is important that we achieve the right balance and make changes only where it is clear that there will be real benefits. Further work would be needed before we can contemplate any kind of across-the-board, potentially wide-ranging changes to the appeals mechanisms.

The Government are already keeping the appeals mechanisms under review. The proposed amendment takes us no further in developing the appropriate policies or framework for appeals mechanisms. It might facilitate some changes in the future, and we appreciate that those responsible for drafting the proposed new clauses have been at pains to draft a power which is permissive rather than prescriptive, at least in so far as it does not force the Secretary of State to adopt one possible approach to reform of the appeals processes rather than another. However, no decisions have yet been taken as to whether change is in fact desirable in this area and, if so, what the correct approach to reform is. It is possible, therefore, that the new clauses might act as a constraint on possible future reforms.

Even if the proposed clauses were to prove appropriate in taking forward any desirable and across-the-board changes these do not seem likely for some little time yet. In the meantime, the new clauses would create an expectation of action on appeals without it being clear what form such action would take, or when it might be taken. This would inevitably create uncertainty for everyone involved: and we are talking here about very large sectors of the economy, some of which are already in the throes of significant regulatory or commercial changes. Rather, we prefer streamlined, clear and efficient regulation that is well targeted.

We are aware of the work which has been done by and on behalf of various utility firms and associations in this area which will no doubt assist us in addressing a number of questions in relation to regulatory appeals mechanisms. However, the work done to date is only a start: a large number of stakeholders would be affected by any change to the regulatory regimes and they would need to be fully involved at every stage of policy development and any eventual change would need to be considered and consulted on fully.

It might seem odd for one government Minister to decline to accept on behalf of another a power to modify substantial parts of nine Acts of Parliament. On the other hand, Ministers are usually criticised for wanting to take too many powers to amend primary legislation, not too few. It may be argued that the amendment does not itself change the appeals mechanism: it merely facilitates change in the future after appropriate consultation. So why do we object to it? My answer is that for all the sophistication of their drafting, the new clauses take us no further in developing the policy or making any substantive changes to the regulatory frameworks. They could act as a constraint on future changes. Further, the clauses are—no doubt, deliberately and for good reasons—unspecific on certain points and are likely to create uncertainty for firms and those involved. Providing for changes to be made before it is clear which changes, if any, are even needed would, in this instance, lead to poor legislation.

I stress that I am not saying that the Government are simply opposed to the appeals mechanisms. We want to ensure that the best and most appropriate mechanisms are established for each regulatory regime in a coherent manner and according to the needs of the individual sector. The new clauses do not help us to do that. Rather than make legislative changes now, we should be clear about whether the proposed changes are needed.

The amendment is not needed to ensure the success of the other provisions in the Bill. For the reasons that I have given, it would be best if the amendment were withdrawn.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I am most grateful for the Minister's full response. In particular, I know that the industry will be pleased to have been complimented on the ingenuity of its drafting.

I am surprised that the Minister is not prepared to take up the remarkable opportunity offered by the amendment. It would provide for a flexible approach to the issues. Not only does it allow for differential treatment between the utilities, but it caters for temporal variation in the introduction of any provisions that the Minister might contemplate.

I am also surprised that the Minister is not struck, to a greater degree, by the huge imbalance between the kind of protective powers given to companies subject to the competition regime and those granted to utilities under the regulatory regimes. The powers wielded by regulators under those regimes are draconian compared to the powers exercised by the Competition Commission and the OFT. In Committee and today, noble Lords have heard Her Majesty's Loyal Opposition complain frequently that the protective powers given to firms subject to the scrutiny of the OFT and the competition regime are not as great as they should be. However, compared to the protective powers given to the utility industries suffering under the lash of the regulators, they are most generous.

The Minister must be aware of that contrast. He must recognise that there is an urgent need to change the balance of power between the regulators and the regulated companies. To use the word "distressed" would, perhaps, be to over-emphasise the sentiments that I am experiencing; but I am certainly sad that the Minister has not taken the opportunity that we offered to insert the clauses, so that he can move swiftly, once the Bill is on the statute book, to a long and careful consideration of the balance of power between the regulators and the regulated in the utility sector.

Between now and Third Reading, I shall reflect on what the Minister said tonight. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 124 and 125:

Page 122, line 34, after "(c. 44)" insert "or section 6 of the Electricity Act 1989 (c. 29)"

Page 122, line 42, at end insert "or (as the case may be) section 3A(4) of the Act of 1989"

On Question, amendments agreed to.

[Amendments Nos. 126 to 129 not moved.]

Schedule 9 [Certain amendments of sectoral enactments]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 130 to 133:

Page 230, line 26, leave out from "is" to second "or" in line 28 and insert "carried on by an airport operator"

Page 230, line 41, at end insert—

"(b) for "the reference" there shall be substituted "references"; and

(c) for "a reference" there shall be substituted "references"."

Page 236, line 25, leave out from "is" to second "or" in line 27 and insert "carried on by an airport operator"

Page 236, line 40, at end insert—

"(b) for "the reference" there shall be substituted "references"; and

(c) for "a reference" there shall be substituted "references"."

On Question, amendments agreed to.

Clause 166 [Advice and information: Part 4]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 134 and 135:

Page 124, line 43, at end insert—

"(5A) Advice and information published by virtue of subsection (1) or (3) shall include such advice and information about the effect of Community law, and anything done under or in accordance with it, on the provisions of this Part as the OFT or (as the case may be) the Commission considers appropriate."

Page 125, line 7, at end insert—

"(10) In this section "Community law" means—

(a) all the rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Community Treaties; and

(b) all the remedies and procedures from time to time provided for by or under the Community Treaties."

On Question, amendments agreed to.

Clause 167 [Further publicity requirements: Part 4]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 136:

Page 126, line 26, at end insert "(after the acceptance of the undertaking or (as the case may be) the making of the order)"

On Question, amendment agreed to.

Clause 169 [Investigation powers of OFT]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 137 and 138:

Page 126, line 37, leave out "(6)" and insert "(5)"

Page 126, line 41, leave out "(6)" and insert "(5)"

On Question, amendments agreed to.

Clause 171 [Investigation powers of the Commission]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 139 and 140:

Page 128, line 15, leave out "subsection (2)" and insert "subsections (2) and (3)"

Page 128, line 29, at end insert—

"(3) Section 108(5)(b)(ii) shall, in its application by virtue of subsection (1) above, have effect as if—

(a) for the words "section 49 or 64, given" there were substituted "section 137, published or given under section 138(1) or (3)"; and

(b) for the words "(or given)", in both places where they appear, there were substituted "(or published or given)"."

On Question, amendments agreed to.

Clause 174 [Review of decisions under Part 4]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendment No. 141:

Page 129, line 23, leave out subsections (3) and (4).

On Question, amendment agreed to.

[Amendment No. 142 not moved.]

Clause 176 [Orders under Part 4]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 143 and 144:

Page 130, line 43, after "repealed" insert "(and the previous enactment revived)"

Page 131, line 2, at end insert "and without prejudice to the making of a new order"

On Question, amendments agreed to.

Clause 178 [Interpretation: Part 4]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 145 to 148:

Page 132, line 1, leave out "Section" and insert "Sections 122(1)(b) and (4) to (6) and"

Page 132, line 1, leave out "it applies" and insert "they apply"

Page 132, line 5, after "notice" insert "under section 134(1)"

Page 133, line 13, at end insert—

"(5A) In subsection (4)(c) the reference to the acceptance of the undertaking concerned or the making of the order concerned shall, in a case where the enforcement action concerned involves the acceptance of a group of undertakings, the making of a group of orders or the acceptance and making of a group of undertakings and orders, be treated as a reference to the acceptance or making of the last undertaking or order in the group; but undertakings or orders which vary, supersede or revoke earlier undertakings or orders shall be disregarded for the purposes of subsections (3)(a)(iv) and (b)(viii) and (4)(c)."

On Question, amendments agreed to.

Schedule 11 [The Competition Commission]:

Photo of Lord Sainsbury of Turville Lord Sainsbury of Turville Parliamentary Under-Secretary (Science and Innovation), Department of Trade and Industry, Parliamentary Under-Secretary (Department of Trade and Industry) (Science and Innovation)

moved Amendments Nos. 149 and 150:

Page 249, line 27, after "of"" insert—

"( ) in sub-paragraph (1), after paragraph (d) there is inserted—

"(e) one or more members appointed by the Secretary of State to serve on the Council.";"

Page 249, line 38, after "Commission"" insert—

"( ) in sub-paragraph (2), before paragraph (c) there is inserted—

"(bb) the member or members appointed under paragraph 2(1)(e);""

On Question, amendments agreed to.

Clause 182 [Commission rules of procedure]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 153:

Page 137, line 8, at end insert—

"( ) "Dishonestly agrees" means, for the purposes of subsection (1), making an agreement knowing that it has one or more of the consequences set out in subsections (2) to (6) in breach of the prohibition contained in section 2 of the 1998 Act (agreements etc. preventing, restricting or distorting competition) and not meeting the criteria in section 9 of that Act (the criteria for individual and block exemptions), with the dishonest intention of causing detriment to consumers or customers."

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, we turn now to the cartel offence. In this amendment, we seek to insert a definition of the phrase "dishonestly agrees".

Perhaps I may make it clear once again that these Benches do not oppose the principle of criminalisation. Although I have made the comment that it is moving to some extent in the opposite direction to the rest of the European Union, it is nevertheless right that those who engage in hardcore cartels should be punished severely. Criminalisation will indeed boost deterrence. That is a very important aspect of this debate.

So, if we do have the cartel offence, it must be made absolutely clear to all those who become aware of this legislation exactly what sort of activity could lead a business person to gaol. We therefore believe that some amendments are required to clarify the scope and effect of the proposed offence.

The concept "dishonestly agrees" will be difficult to explain in court in the context of competition law. It is important, therefore, to include the concept of intent. That is the purpose of Amendment No 153, which would insert a definition of "dishonestly agrees", which means:

"for the purposes of subsection (1), making an agreement knowing that it has one or more of the consequences set out in subsections (2) to (6) in breach of the prohibition contained in section 2 of the 1998 Act . . . and not meeting the criteria in section 9 of that Act . . . with the dishonest intention of causing detriment to consumers or customers".

So, not only does the offence need to include the concept of intent; it should also be directly linked to infringements of the Competition Act, to make clear that normal business activities are not caught. I very much hope that the Minister will agree to include this definition in the clause.

Amendment No. 154 seeks to delete the words in Clause 183(2):

"if operating as the parties to the agreement intend, would", so that the subsection would state simply:

"The arrangements must be ones which"— followed by paragraphs (a) to (f). Unless the words referred to in the amendment are deleted, it would appear that the offence could theoretically be committed, even where the relevant arrangements provided for in the agreement could not in practice lead to any of the circumstances set out in paragraphs (a) to (f).

If the agreement should have any of those consequences unintentionally, the parties would presumably not be acting dishonestly. So we seek to improve the definition of a cartel offence in the way I have described. I beg to move.

Photo of Lord Razzall Lord Razzall Liberal Democrat 11:00 pm, 15th October 2002

My Lords, I support this amendment. The issue was discussed at significant length in Committee, and it is a simple one. Those from the Conservative Benches and ours who support the amendment do so not because we are against the principle of criminality for cartelisation. We believe that legislation to criminalise cartel activity in this country is long overdue.

No doubt the Minister, when he replies to the amendment, will indicate, as he did in Committee, that two approaches to tests for cartelisation were considered in the consultation document. No doubt he will say, as he did in Committee, that the definition of dishonesty in the Ghosh case ought to prevail because it is long tried and tested in case law. That is true. However, the concept of the offence of dishonesty, which could lead to significant criminal offences, touches upon areas of activity that hitherto have not normally been subject to criminal penalties in this country. We support the Conservative Benches' view that it is much better to have the definition of dishonesty with the requisite intent described on the face of the Bill than to rely on a case that did not originally apply to this type of activity, and which, had it done so, may not have been applied as the Government intend.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I am grateful to both noble Lords for their support for the criminalisation of hardcore cartels. The noble Lord, Lord Razzall, is trying to anticipate what I will say, and he is doing so with reasonable accuracy. Amendment No. 153 alters the new offence by defining a dishonesty on the face of the Bill rather than relying on the Ghosh case in case law. The definition in Amendment No.153 would require the prosecution to prove that the defendant had made an agreement knowing both that it fell into one of the categories of hardcore cartel and that it breached Section 2 of the Competition Act 1998 and did not meet the criteria for exemption in Section 9 of that Act.

The second part of the definition is a real problem. A requirement of knowledge of a breach of the Competition Act would render the offence virtually unprosecutable. It would be extremely difficult, if not impossible, for the Crown to prove beyond reasonable doubt that the defendant who had concluded a cartel agreement did so knowing that he was breaching particular sections of the Competition Act 1998. That would undermine our ability to create a real deterrent. I note the points that the noble Lord, Lord Hunt, made about the need to boost deterrence.

We do not have the same problem with the first part of the amendment. However, it is not necessary, as the Bill already provides that for the offence to be committed, the agreements must be ones which,

"if operating as the parties to the agreement intend", would result in one of the cartel activities. The Bill requires the Crown to prove that the defendant acted with a dishonest state of mind, which is a critical part of the Ghosh definition. That implies both intent and knowledge of the consequences of the agreement.

We share the concern that these new offences should be tightly drawn. The offence as it stands targets "dishonest" agreements precisely in order to avoid catching bona fide activity which would be exempted under existing competition law; for example, Article 81 of the EC treaty or the equivalent provisions in the Competition Act 1998.

"Dishonesty", as we use it, creates a high hurdle for the prosecution. In any event, the Serious Fraud Office would not prosecute where the agreement would not be anti-competitive under existing civil competition law.

Amendment No. 153 also seeks to require the prosecution to prove that the agreement is made,

"with the dishonest intention of causing detriment to consumers or customers".

The problem is that as soon as one brings "dishonest" into the definition it becomes circular. One would have to reintroduce the "Ghosh" test meaning of "dishonesty" in order to defend it. I do not know whether that is what is intended, but that is what it does. In any event, one does not need to refer to the detrimental effect on consumers or customers. The primary intention of the defendant is likely to be to earn supra-normal profits, not detriment to consumers. We are criminalising cartels because of their damaging effect, but bona fide business agreements which do no harm will not be "dishonest" agreements. As can be seen, I am unhappy with Amendment No. 153.

I turn to Amendment No. 154. The policy intention behind the words which would be removed is specific and important. The intention is that the offence should criminalise individuals who reach agreements to operate the various sorts of hard-core cartels, which are set out in paragraphs (a) to (f). If we were to leave it until they were implemented, we would find a prosecution knowing that it was going to take place and having to sit on its hands waiting for the detriment to occur.

Where individuals have entered into a dishonest agreement to operate a cartel, none of this reduces the seriousness of what they have done. An offence is committed whether or not the agreement reached between the individuals is implemented by the undertakings as the individuals intended. It is only right that they should be exposed to criminal sanctions, whether or not circumstances mean that the agreement is not implemented. I do not agree with the noble Lord, Lord Hunt, that that includes where they could not in practice be implemented.

I hope we all agree that a key purpose of the offence is to deter agreements being reached in the first place. The proposed amendment would undermine the deterrent effect.

Photo of Lord Razzall Lord Razzall Liberal Democrat

My Lords, before the Minister sits down, will he accept that in the Ghosh case the definition of dishonesty, on which the Government are relying in this case, is that juries must ask themselves, first, whether what was done was dishonest by the standards of reasonable people and, secondly and more importantly, whether the defendant understood that that was the case?

As regards prosecutions in this area, the defendant in order to be caught by the Ghosh case must understand that it was dishonest in the context of the provisions referred to in the amendment. Otherwise, no reasonable person could regard it as being dishonest. If the Minister believes that it is impossible to prosecute under the amendment proposed by the noble Lord, Lord Kingsland, would he not accept that the arguments apply equally to those two tests in the Ghosh case?

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I said that the Ghosh case implies both intent and the knowledge of the consequences of the agreement. Under Amendment No. 153, the Crown would have to prove beyond reasonable doubt that the defendant who had concluded a cartel agreement did so knowing that he was breaching particular sections of the Competition Act 1998. That does not make sense.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, at this late hour I have no wish to engage in semantics with the Minister, and certainly no wish to engage in circular semantics. Therefore, I will take time to reflect on what he said and on the perceptive questioning and interesting points made by the noble Lord, Lord Razzall. Therefore, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 154 not moved.]

Clause 185 [Cartel offence: penalty and prosecution]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 155:

Page 138, line 42, leave out ", or

(b) by or"

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, in Committee, the noble Lord, Lord McIntosh of Haringey, stated that the SFO and the OFT would work together both in cartel investigations and on decisions to prosecute. However, it will be the SFO that will undertake any prosecution in England, Wales and Northern Ireland. As I understand it, the Government believe that this approach will link the SFO's expertise in criminal prosecution with the OFT's expertise in competition investigations. We also learned from the noble Lord that the Government do not expect a large number of prosecutions. He said that on 18th July 2002 at col. 1542 of the Official Report.

The envisaged procedure appears to be that the OFT will undertake the initial investigation using powers broadly modelled on the SFO powers in the Criminal Justice Act 1987. The OFT will inform the SFO as soon as the case appears likely to lead to a criminal prosecution. At that point, either the decision may be taken to hand over the case to the SFO to prosecute, or the OFT may remain involved for a period—called "extended vetting"—before a decision is taken.

In fact, even though the OFT is included as an additional prosecutor of the offence, it is neither expected nor adequately resourced to do so. The OFT has only been included to facilitate any change of circumstances in the future that will justify it being able to perform a prosecution role. This was made clear on 18th July 2002 at col. 1542 of the Official Report and on 22nd July at col. 134.

We remain of the view that there is a serious risk of confusion over the exercise of these powers if the OFT is to have both criminal investigatory powers under this Bill and civil investigatory power under the Competition Act 1998. These are different procedures and, perhaps of even greater importance, engage different rights of defence. If the Government intend the SFO to be the lead prosecutor, in my most respectful submission, the Bill should say so. If this proves inappropriate, extending the powers to the OFT can be debated as an amendment to the Bill as enacted at a later stage.

We believe, firmly, that criminal investigations of cartel offences should be carried out exclusively by the SFO. The OFT has no experience of criminal investigations. It should not, therefore, have the burden and responsibility of complying with the different standards that apply in criminal matters. Its responsibility should be limited to the enforcement of civil remedies. I beg to move.

Photo of Lord Razzall Lord Razzall Liberal Democrat

My Lords, I support Amendment No. 155, which is identical, I think, to the one that my noble friend Lord Sharman moved in Committee. When, quite late at night, this matter was debated in Committee, the Minister gave a rather extensive explanation of how in his view the SFO and the OFT would operate in this sphere, giving those of us who proposed the amendment some food for thought.

The critical remarks of the noble Lord, Lord McIntosh, are set out at col. 1542 of the Committee stage debate where, having explained in detail that it was envisaged that the SFO and OFT would operate very much in the way that my noble friend Lord Sharman and the noble Lord, Lord Kingsland, wanted, he said that it was nevertheless necessary to have the Bill drafted in the way that it is for the following reasons. He stated:

"The OFT is included in the Bill as an additional named prosecutor but it is neither expected nor resourced to prosecute initially. It has only been included so that if circumstances justify it in future, the OFT will be able to perform a prosecution role. That might arise if the number of cartel prosecutions created a conflict with other SFO priorities".—[Official Report, 18/7/02; col. 1542.]

What the Minister will say, if he is not on this occasion prepared to accept the noble Lord's amendment, is that he accepts that the matter will be tackled in the way that we want but just in case in the future it might be necessary because of resource implications for it to be done another way, we have to have the Bill phrased in the way that it is.

I doubt whether the noble Lord, Lord Kingsland, or I will be able this evening to persuade the Minister to give any ground. However, perhaps I may draw to his attention the fact that as we have progressed through the Bill and we on this side of the House have produced amendments with regard to what might happen in the future, we have always been told, "We do not need to do that because the Government will be able to deal with the situation in a different way were that eventuality to arise". I cast noble Lords' minds back to the debate that we had on what could be called "the Sir Jeremy Lever amendment" where the noble Lord, Lord Sainsbury of Turville, told us that were the situation we were considering likely to arise, the Government would be able to deal with it in a certain way.

I was persuaded completely by what the Minister said in Committee about how he envisaged that the measure would operate. However, I was not persuaded that that was a reason for not accepting what was the amendment of my noble friend Lord Sharman and what is now the amendment of the noble Lord, Lord Kingsland. Therefore, I support the amendment.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 11:15 pm, 15th October 2002

My Lords, I do not know why the House needs me as the noble Lord, Lord Razzall, makes my speeches for me and anticipates what I am going to say. That saves time up to a point. However, I still have to make the points.

Amendment No. 155 seeks to amend the arrangements for the prosecution of the new offence by making the SFO the sole prosecutor, but subjecting its prosecutorial role to the consent of the OFT. That is a new element on the amendment of the noble Lord, Lord Sharman.

The Bill provides for the SFO and the OFT to prosecute the new offence in England, Wales and Northern Ireland, but it is our expectation, as the noble Lord, Lord Razzall, anticipated, that the SFO will carry out all prosecutions in the first instance. It has the necessary resources and experience for the criminal prosecution of this type of case, having prosecuted other white-collar crime such as insider dealing for many years.

However, it may become appropriate at some time in the future for the OFT, whose role initially will be as investigator, to take on a prosecutorial role. I believe that the noble Lord, Lord Kingsland, suggested that there might be a conflict between the prosecutorial role and the investigatory role. I remind the noble Lord that we commissioned an independent review of OFT procedures carried out by Sir Anthony Hammond and Roy Penrose. They concluded that if the OFT were to prosecute,

"it would be possible to ensure, by creating suitable internal structures, the separation of the investigatory from the prosecutorial function, thus complying with what has become known as "the Phillips Principle" ie: that those taking the legal decision to prosecute should be seen to be separate from and independent of the investigators".

Therefore, I believe that we have already answered that question.

The OFT would have to take time to develop the necessary capability and resource before it could take on a prosecution role. That is consistent with the Government's stated policy in the response to consultation; namely, that the SFO should be the lead prosecutor in England, Wales and Northern Ireland with the OFT as an additional named prosecutor. The amendment also proposes to give the prosecution role to the SFO but to deny it the discretion to take the final decision on which cases to prosecute. I do not know whether that is intended but that is what it would do. It will of course work closely with the OFT on cartel cases that look likely to lead to criminal prosecution but the final decision will rightly be its own. On that basis, I hope that the amendment will not be pressed.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I thank the noble Lord the Minister for his reply and the noble Lord, Lord Razzall, for the sharp illumination that he focused on the dustier corners of the analysis that the noble Lord, Lord McIntosh, made in Committee.

I am not as happy as I would like to be about the reply of the noble Lord, Lord McIntosh, but I am aware that I am unlikely to make much more progress. I shall reflect on this matter between now and Third Reading. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 190 [Exercise of powers by authorised person]:

[Amendment No. 156 not moved.]

Clause 191 [Privileged information etc.]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 157:

Page 141, line 27, leave out paragraphs (a) and (b) and insert "the reference in subsection (1)—

(a) to proceedings in the High Court is to be read as a reference to legal proceedings generally; and

(b) to an entitlement on grounds of legal professional privilege is to be read as a reference to an entitlement by virtue of any rule of law whereby—

(i) communications between a professional legal adviser and his client, or

(ii) communications made in connection with or in contemplation of legal proceedings and for the purposes of those proceedings, are in such proceedings protected from disclosure on the ground of confidentiality."

On Question, amendment agreed to.

Clause 194 [Surveillance powers]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 158:

Leave out Clause 194.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, we believe that the surveillance powers that were introduced by the RIPA to combat serious crime and terrorism should not be available to a public authority whose responsibilities are the regulation of competition. Protection of our liberties justifies the security forces having these new intrusive surveillance powers. But surely it is not right to grant the same powers to OFT officials. Surely the fight against terrorism cannot be equated with the task of eliminating the more dubious commercial practices of, for example, a cartel of provincial taxi drivers. I beg to move.

Photo of Lord Razzall Lord Razzall Liberal Democrat

My Lords, I support the noble Lord, Lord Kingsland. This is probably a rare example in this House on which I can observe that everything has been said that I wanted to say; I have certainly said it.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I accept that with gratitude.

I do not believe that the noble Lord, Lord Kingsland, or, de facto, the noble Lord, Lord Razzall, are saying that we do not need appropriate surveillance powers to investigate cartels. The very nature of cartels is that they involve agreements reached between private individuals in private places. If one does not have surveillance powers one will simply not learn what is happening. That is very often a matter not even of documentation but of verbal agreement.

Clause 194 amends the Regulation of Investigatory Powers Act 2000 to grant the OFT access to intrusive surveillance powers for the United Kingdom. With those powers the chairman of the OFT may authorise the planting of surveillance devices in residential premises, including hotel accommodation, and private vehicles. In the chairman's absence and in an urgent case, a senior officer of the OFT designated for the purpose may also grant an authorisation.

As I indicated, cartels operate under cover and are notoriously difficult to detect. I shall not resist the temptation to talk about the cartel that I know best. In the 1960s I worked in the electric lamp industry, which was one of the most blatant cartels. Everything was written down, and that was achieved by the heads of the company that I worked for and of the other companies that produced electric lamps in this country going to a luxury hotel in Switzerland and agreeing the prices of all electric lamps and the discounts for super-wholesalers, wholesalers and retailers. As they went to Switzerland, they probably would not even be caught by these provisions.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, in those circumstances, the Minister must be most relieved that the new provisions on the criminalisation of cartels will not be made retrospective.

Photo of Lord Razzall Lord Razzall Liberal Democrat

My Lords, is the Minister going to confirm that this evening?

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, they are not retrospective and I had no personal part in reaching these agreements. I hasten to add that they went back even before my time to the Phoenix agreements of the 1920s. However, the point is still the same. The meetings are held on neutral territory and records are not necessarily kept. Surveillance powers could provide irrefutable evidence in court of participation in a cartel. It is in the public interest to gain evidence about a cartel which can lead to a successful prosecution. In the case of the cartel for Lysine, an additive widely used in animal feed, the US authorities obtained video evidence which showed cartel members in hotel rooms concluding their deals. They provided decisive evidence in securing convictions for offences that were committed over a period of four years.

Of course, the powers are strong. They will be used only in the most serious cases and where the OFT has specific information about a meeting from an informant. But there are important safeguards, which come from the Regulation of Investigatory Powers Act 2000. The RIPA establishes a framework under which the powers can be operated to uncover crime.

For an application for intrusive surveillance under the RIPA to be authorised, its use must be proportionate to what is sought to be achieved and it must meet one of three criteria. The one that will apply for the cartel offence is that the intrusive surveillance is necessary,

"for the purpose of preventing or detecting serious crime".

It must be the case that the information could not reasonably be obtained by other means. All applications for authorisations are subject to the scrutiny and approval of the surveillance commissioners.

The clause restricts the purpose for which the OFT can use intrusive surveillance to preventing or detecting the cartel criminal offence. The OFT is not able to apply the powers for the purpose of any of its civil investigations. When an authorisation is granted, the OFT intends to outsource the technical deployment of the intrusive surveillance activity to other public authorities which already have access to the powers and experience of exercising them.

The powers are strong but they are necessary and proportionate. Cartels are secretive arrangements which can be successfully detected and prosecuted only with adequate powers of investigation.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I thank the Minister for his very full reply. I find this one of the most worrying clauses in the whole Bill. The powers that the Government seek under the clause are, in my submission, wholly disproportionate to the objective that they wish to achieve. Even in circumstances where the powers, as exercised, exceed the purported control framework, there is very little that the object of their use can do about it.

There is a real possibility that we shall bring back this matter at Third Reading and put the Government to the test on it. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 158A not moved.]

Clause 199 [Disqualification]:

[Amendments Nos. 159 to 166 not moved.]

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I make no comment on the nearly five pages of complicated provisions on director disqualification. My purpose is to seek an explanation of why the clause differs so dramatically from the White Paper, by extending director disqualification orders to directors of companies infringing competition law.

In last year's White Paper, the Government suggested that disqualification would only come into operation for those who had committed a serious breach of competition law. Clause 199 goes much further, by extending disqualification to any breach of competition law—not only UK but European. Any such breach, however minor, could be used as a basis for disqualification. Does the Minister think that is an appropriate balance between the alleged offence and the punishment? Also, can the Minister confirm that the OFT draft guidance envisages seeking disqualification of entire boards of directors?

Given that competition law is seldom easy to determine and is never black and white, there are often legitimate differences of opinion as to whether conduct is pro-competition or anti-competitive. The blanket approach could be extremely unfair. If disqualification is to be introduced in the way suggested, changes are needed to limit it to serious breaches. I beg to move.

Photo of Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts Conservative

My Lords, we began the afternoon talking about corporate governance and a key part of that is a board that has independent members—non-executive directors in the modern parlance. Under Clause 199, non-executive directors, who perforce are members of the board, are equally liable. As the noble Lord, Lord McIntosh, said, things are often done secretly, away from non-executive directors. It is not always easy to determine rights and wrongs but such directors could still be the subject of a disqualification order.

In my experience—not direct experience, I hasten to add—the operation of the Company Directors Disqualification Act 1986 is sometimes capricious in the way that it lands on a particular individual. The power is likely to deter people of probity and integrity from taking on non-executive directorships because they may run foul of Clause 199. It must be in all our interests that high-quality people take up such posts, because that is an essential part of good corporate governance. Unless the clause can be made a great deal more sensitive, it is likely to deter such people.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I have a number of difficulties with the amendment and with the arguments put forward. My fundamental area of disagreement is with the assumption that disqualification is somehow a form of punishment. It is not intended as a punishment; it is intended to protect the public from directors whose actions or omissions have shown them to be unfit to be involved in the management of a company.

Breaches of competition law do real harm to consumers and other businesses and may indicate that the people involved are unfit to be company directors. This is not so different from the White Paper published in July 2001, which referred to breaches of UK and EC competition law. The clause defines a breach of competition law as a breach of either the Competition Act 1998 prohibitions or Articles 81 and 82 of the EC treaty.

Disqualification will not be automatic. In order for a disqualification order to be made, the court must be satisfied that two conditions have been fulfilled. First, the company must have committed a breach of competition law. As I have stated, that is defined as either a breach of the prohibition on anti-competitive agreements contained in Chapter 1 of the Competition Act 1998 or Article 81 of the EC treaty, or a breach of the prohibition against abuse of a dominant position in Chapter 2 of the Competition Act 1998 or Article 82 of the EC treaty.

Secondly—this is most important—the court must consider that the person's conduct in respect of the competition breach makes him unfit to be involved in the management of a company. In considering whether that condition is fulfilled, the court will consider whether the director was actively involved in the competition breach; or while not actively involved in the breach, the director had reasonable grounds for suspecting the breach but did nothing; or whether the director did not know but should have known about the competition breach. If under those definitions someone is found by the court to be unfit to be involved in the management of a company, I find it difficult to argue on what basis there should be no disqualification of that director.

There are a number of safeguards in the clause. It is for the court to decide on the facts of each particular case whether or not the person is fit to be involved in the management of a company. If the court is not satisfied it will not make a disqualification order. In addition, before any disqualification application can be made, the director must be given notice and an opportunity given to make representations.

We have to consider this in perspective. The vast majority of companies in business operate responsibly. The disqualification provisions will potentially apply only to the small minority of directors whose companies have been found to have breached competition law. It is right that disqualification should be available to protect the public where a director's conduct in breach of competition law has shown him to be unfit to be involved in the management of a company.

I turn to the question raised regarding a board of directors as a whole. A board of directors might resolve that the company should engage in an activity which constituted a breach of competition law. I suggest that the OFT would view that as a particularly serious case. It might consider applying for orders against each member of the board of directors of the company in question, but when doing so it is likely to take into account the conduct of each individual director in relation to that resolution. However, that is in those cases where there is a formal resolution of the board which is thought to be in breach of competition. Therefore, it is possible for a whole board to be disqualified, but only under the specific circumstances I have outlined. Fundamentally, the proposal to remove this clause suggests that a person who is found by the court to be unfit to participate in the management of a company should not be disqualified. I cannot believe that that is the case.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I always believe that it is not a good idea for those responding to debates to move to an extreme position. I shall make two points. First, I shall look again at last year's White Paper. However, it was certainly my understanding that in that document the Government suggested that disqualification would be available only to those who have committed a serious breach of competition law. As I understand it, the Minister is saying that that is not the case. I do not have the White Paper to hand; obviously I should like to re-read it to see whether he is correct.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, I do not have the White Paper either. I do not want to deny what the noble Lord, Lord Hunt, says. I base my argument not on that, but on the unfit argument.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, the Minister wriggles. He even denies that he wriggles, but he does, because that was my basic question. If the Government in their White Paper said that disqualification would be available only for those who committed a serious breach of competition law, why have they changed their mind? The Minister rested his case on the fact that he did not believe the Government had changed their mind. We need to reflect on that matter.

I endorse the remarks of my noble friend Lord Hodgson of Astley Abbotts: who would be a non-executive director in these turbulent times? My good friend at university Mr Derek Higgs is considering that question at present. He is eminently well qualified to produce recommendations. But that is a key question given the state of law on liability; the way in which the corporate veil is being lifted; the extent of responsibilities as well as rights; the Turnbull report and all the previous reports; and now a criminal sanction and possible disqualification where a non-executive director might not have known of the anti-competitive behaviour, but should have done.

There are all sorts of problems, but the Minister has taken a great deal of time and trouble in responding. I would like to take an equal amount of time to consider the effect of what he said. In those circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Moved accordingly, and, on Question, Motion agreed to.