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Enterprise Bill

– in the House of Lords at 4:06 pm on 28th October 2002.

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Proceedings after Third Reading resumed.

Clause 17 [Monetary claims]:

Photo of Lord Kingsland Lord Kingsland Conservative 4:28 pm, 28th October 2002

moved Amendment No. 2:

Page 7, line 38, at end insert—

"( ) In section 46(2) of the 1998 Act, there is inserted after paragraph (h)—

"(i) to issue a notice under section 26 requiring the production of specified documents or information;

(j) to investigate premises without a warrant under section 27;

(k) to investigate premises with a warrant under section 28;

(l) not to investigate a complaint under Chapter I or II;

(m) not to grant interim measures under section 35.""

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, Amendment No. 2 was tabled both at Committee and Report stages. None of the measures stipulated in the amendment is capable of being appealed to the Competition Appeal Tribunal, but each has significant effects for the party concerned and, at present, can be challenged only by judicial review. In my submission, it is entirely consistent with the Government's wish to have competition matters dealt with by bodies versed in competition law that the decisions listed above should go to the CAT and not to the courts.

In Committee, on 18th July 2002, at col. 1429 of Hansard, the noble Lord, Lord McIntosh of Haringey, stated that the Government did not propose to add any category of new appealable decisions, with the exception of the category covered by paragraph (m),

"not to grant interim measures under section 35".

The noble Lord continued that the other proposed additions were not appropriate as they would extend the category of appealable decisions to intermediate or investigatory steps taken by the OFT. The noble Lord further stated that parties at the stage of intermediary investigatory steps could still use judicial review which carries with it the opportunity for interim measures.

As I suspect the noble Lord, Lord McIntosh, is by now aware, our view is that that approach is inconsistent. The Government have created a body with competition expertise and it is only sensible, therefore, that the body deals with all aspects of the OFT's handling of investigations.

In response to the amendment on Report in your Lordships' House, on 15th October 2002, reported at cols. 750 and 751 of Hansard, the noble Lord, Lord Sainsbury, argued that granting a right of appeal on interim investigatory steps would increase the length of the OFT's investigation and generally slow down the whole process in a detrimental manner. In relation to the specific proposal concerning paragraph (l)—the proposal not to investigate a complaint—the noble Lord said that the OFT needed to have a discretion to deploy its resources appropriately.

We do not disagree with those observations. Our case is based on identifying the most efficient body to deal with those complaints. The Government recognised that those steps listed in the amendment might be reviewed under judicial review. That is a very time-consuming process. Our proposal is that the Competition Appeal Tribunal is better placed to ensure that the OFT's procedures are effectively and efficiently carried out with proper respect for due process and the rights of defence. The OFT, for example, might adopt a policy, as has the European Community Commission in the Automec case, not to investigate minor infringements. If it does, the CAT is better placed to consider whether a decision, in any case, is in accordance with that policy.

I note that Amendment No. 43 is grouped with the amendment, and I should like also to speak to that. Under the Competition Act 1998, a person who has applied to the OFT for a decision that an agreement or practice does not infringe Chapter 1 or 2, or is entitled to an exemption under Section 9, may apply to the High Court for directions if there has been undue delay on the part of the OFT to determine an application for a decision.

There is no similar procedure available to be used by a complainant who believes that there is undue delay in the handling of his complaint by the OFT. This clause is intended to remedy that. This clause also gives the jurisdiction to the CAT because it is believed that this is the appropriate body to regulate the activities of the OFT, both in terms of substance and procedure.

I moved a similar amendment on Report, on 15th October 2002, at cols. 746 and 747 of Hansard. The noble Lord, Lord Sainsbury, considered that the amendment would restrict the OFT's ability to prioritise its caseload and would hamper the investigation with alleged serious breaches of the Act. He indicated that, on occasions, the OFT is dependent on further information from third parties in order to progress an investigation.

With great respect to the noble Lord, that does not deal with the point. The Competition Act enables a party who has applied for a decision for an exemption to apply to the High Court if there has been a delay by the OFT in handling that decision. In dealing with decisions, the OFT will also have to take into account views and information received from third parties. It is not consistent, therefore, to say that there should not be any remedy or relief in complaints cases.

Clearly, if a complainant has erred in making an application, the Competition Appeal Tribunal would no doubt make that clear and potentially award costs against the complainant. That would send a signal to those who might otherwise make an ill-founded application. I beg to move.

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, Amendment No. 2 would add to the list of decisions by the OFT that could be appealed to the Competition Appeal Tribunal under the 1998 Competition Act. The amendment refers again to new Section 46(2) but it should refer—as it should have done on the previous occasion—to new Section 46(3).

New Section 46(3) lists a number of decisions of the OFT that can be subject to a full appeal to the tribunal and further decisions may be added by regulations under new Section 46(3). Strictly speaking, it is not necessary, therefore, to add these further rights of appeal on the face of the Bill.

The right of appeal at paragraph (m) in the amendment is already available under new Section 46(3) and it is not necessary to grant it again. I apologise that my noble friend Lord Sainsbury inadvertently misled the House when he stated last week that we had already agreed to add this further right of appeal to new Section 46(3) and to new Section 47. He meant to say only that such a right of appeal on interim measures was to be granted to third parties under new Section 47. It is already available to parties under investigation.

I turn to the remainder of the proposals. I wonder whether the repercussions of adding these further rights of appeal have been thought through. The proposal at paragraph (l) of the amendment would provide a right of appeal against an OFT decision not to investigate a complaint under Chapter 1 or Chapter 2 for a party to an agreement. I am not clear why a party to an agreement would wish for such a right of appeal. Surely an OFT decision of this kind would favour the party to the agreement.

I wonder whether it was intended to add a third party right of appeal which could be dealt with under Section 47. The noble Lord indicates that that is not so. That removes that doubt in my mind. Complaints are the main way in which the OFT uncovers anti-competitive behaviour and give rise to some 1,300 cases a year. Many are initiated as a result of multiple complaints which can number in the thousands. Of those 1,300 cases, only 5 per cent provide reasonable grounds for suspecting an infringement of the Competition Act prohibitions which would lead to OFT's more formal powers of investigation being used. It would be highly wasteful of the resources of both the OFT and the Competition Appeal Tribunal if we were to provide a right of appeal to every complainant, especially in view of the fact that many complaints either do not give rise to competition concerns or do not contain enough evidence to warrant further investigation. However, it is the 95 per cent who would be appealing.

I hope that that serves to demonstrate that the OFT does not initiate use of its formal powers unless it has carefully considered the information before it and believes that there may be a case to be answered which warrants further investigation. The first step is almost always to ask for further information under Section 26 and the OFT is always conscious of the balance between placing a burden on business and the legitimate needs of competition law enforcement. In some cases, a request under Section 26 can bring the anti-competitive conduct to an end and the OFT will not need to take any further administrative action.

In other cases, the use of further investigative powers will be necessary. Cases in which the OFT deploys its powers to enter premises almost always run through to a final infringement decision. Where an investigation is undertaken under a warrant, the judge issuing the warrant must be satisfied that stringent criteria are met before issuing the warrant. The OFT's investigative powers, which were extensively debated before they were granted during the passage of the Competition Act, are not used indiscriminately or without good reason. The OFT uses them carefully where it believes that there may be an infringement of the Competition Act. The system also has the appropriate checks and balances and there is a further check available to parties under investigation before a formal infringement decision is issued. OFT is required to notify the relevant parties of its intended decision and there is then ample opportunity for those parties to make oral or written representations, which the OFT will take into account in reaching its final decision.

I am still convinced that the remaining proposals in the amendment—that is, those in sub-paragraphs (i) to (l)—should not be taken forward. I cannot see that adding further rights of appeal to intermediate steps in the OFT's investigative procedures on cases where the OFT believes that the test of reasonable suspicion has been reached would produce an efficient and effective system that balanced the interests of all parties. Those are not substantive decisions of the OFT and we would be creating further barriers to the effective enforcement of competition law.

Amendment No. 43 would provide persons who had submitted material to the Office of Fair Trading, alleging an infringement of the Chapter I and Chapter II prohibitions of the Competition Act 1998, to seek a direction from the Competition Appeal Tribunal that the OFT's investigation of the alleged infringement is determined without any unnecessary further delay, where the court is satisfied that there has been undue delay on the part of the OFT.

I have already explained that the majority of complaints received by the OFT are not progressed either because they do not give rise to competition concerns or because they do not contain sufficient information. The amendment does not distinguish between those complaints and other complaints that give rise to concerns and which lead to further investigation. The amendment would require the Competition Appeal Tribunal to determine whether there had been undue delay on the part of the OFT in investigating those allegations. In my view, the CAT is not the appropriate body. At the earliest opportunity, we intend to bring into force paragraph 7 of Schedule 5 and paragraph 7 of Schedule 6 to the Competition Act, which would provide for an applicant aggrieved by the failure of the OFT to determine a notification under the Competition Act to apply to the courts seeking a direction requiring OFT to determine the application without unnecessary further delay. Those provisions were not to be commenced until the 1998 Act had bedded down. In view of that model in the Competition Act, it would not be appropriate to give a power to the CAT when a similar power has been granted to the courts. The amendment is to that extent defective.

Setting aside any deficiencies in drafting—one cannot have deficiencies in drafting at Third Reading in the second Chamber—I am firmly of the view that that amendment is not desirable. As my noble friend Lord Sainsbury said, in order to ensure that the most serious and harmful cases are dealt with effectively, the OFT needs to have the discretion to deploy its resources where they are most needed. If it is unable to judge the degree of priority that should be placed on individual complaints independent of external pressures, its ability to prioritise its caseload would be marred and investigation of serious breaches of the Act would be hampered.

As my noble friend said, many elements of an investigation are outside the control of the OFT, for example, where the OFT is dependent on further information from third parties. That can affect the time that it takes the OFT to gather the material necessary to further an investigation but it would not be assisted by that amendment. In other words, I cannot support the amendments.

Photo of Lord Kingsland Lord Kingsland Conservative 4:45 pm, 28th October 2002

My Lords, I am most grateful to the Minister for giving such a full explanation of his reasons for not supporting the amendments; that is much appreciated on these Benches.

I could reply in detail to the noble Lord's comments; these points have been well rehearsed by now in your Lordships' House. The fundamental deficiency with those points is rather like the fundamental deficiency of the noble Lord's approach to Amendment No. 1, on referring competition cases to the specialised tribunal. In the Competition Act 1998 and in the Bill, the Government have created a specialised body to deal with the judicial issues that arise out of anti-competitive practices. I remain puzzled about why the Government, having created that institution, persist in not allowing it to deal with all of the judicial issues that arise out of competition investigations and competition disputes. That appears to be wholly irrational.

I should very much like to test the opinion of the House on this amendment but we have already voted on Amendment No. 1. If we voted on every amendment about which I feel strongly, we should be here all night. I therefore hope that, after mature consideration, the Government will amend the Bill along the lines suggested in the amendment. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 19 [Findings of infringements]:

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, in moving this amendment, I shall speak also to Amendments Nos. 4 to 7, 9 to 17, 21 to 24, 31, 45, 54 to 58 and 74.

These government amendments are technical and improving amendments which were identified following a final read through the Bill. We wrote to those who took part in these debates on what the amendments involve. They do not raise any issues of great substance but we believe that they are well worth making. They would improve the quality and internal consistency of the Bill as well as provide some additional future flexibility to deal with highly technical areas of the Bill. I shall focus my remarks on the more noteworthy of the amendments.

Clause 19 adds new Section 58A to the Competition Act 1998 to provide that infringement findings—for example, an OFT decision that the Chapter I prohibition has been breached—will be binding on the courts when the courts are considering damages claims. Amendment No. 7 clarifies that the new section does not apply in relation to infringement decisions that were made before the commencement of the section.

Amendment No. 17 to Clause 106 ensures the continued viability of the system by which the OFT offers confidential advice to parties considering a merger. Clause 106(1) currently requires the OFT to publish reasons for its decisions to refer or not to refer a merger. Clause 32(2)(b) states that the OFT may decide not to make a reference if the merger arrangements are not sufficiently advanced to justify it. The OFT would rely on that provision to avoid referring a merger in contemplation about which the parties had approached it for confidential advice. However, as the Bill stands, that would be a decision that the OFT is required to publish, which would undermine the confidentiality of the system. The amendment will ensure that the OFT will not be required to publish any decision not to refer where the grounds are those in Clause 32(2)(b).

Amendments Nos. 21 and 22 are minor amendments to Clause 120. They are designed to ensure that the Secretary of State has a similar power for determining turnover for the purpose of merger fee payments as is available for the jurisdictional turnover test in Clause 27. Amendment No. 9 deletes Clause 33 and replaces it with a power for the Secretary of State to make provision for the effective operation of Clauses 26 and 28. Clauses 26 and 28 enable the OFT to treat a sequence of transactions stretching over a prior period of up to two years—for example, the piecemeal acquisition of shares—as occurring simultaneously on the date on which the latest of them is recorded for the purpose of a reference. However, where the latest of the transactions is anticipated and there is therefore no firm date for the last transaction, a notional date is required from which to work back the permitted two years. Clause 33 supplies that notional date by saying that Clauses 26 and 28 will apply as if the anticipated transaction had occurred immediately before the date of the reference. However, we now believe that treating all the transactions as though they had taken place on that date sits uncomfortably with Clause 32 and related provisions, which are formulated on the basis that the merger is anticipated.

This is a highly technical area where we believe that a power to make regulations and adjustments to accommodate the rare hybrid cases that are a mixture of completed and anticipated transactions is preferable to setting out the detail on the face of the Bill. Amendment No. 24 makes the exercise of that new power subject to the affirmative parliamentary procedure.

Amendment No. 58 is concerned with the special regime for water mergers. It is consequential to the mass of amendments made on Report to the general merger regime. Where a merger case is handled initially in Brussels but falls subsequently to the domestic regime, it will ensure that the domestic authorities are not time-barred from considering those cases. This latest amendment ensures that the power provided in Schedule 6 to adapt by regulations the general mergers regime for the purposes of the water regime is wide enough to allow for the extension of the four-month timetable in the circumstances where ECMR proceedings have delayed the domestic consideration of a water merger. I beg to move.

On Question, amendment agreed to.

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 Amendments Nos. 4 to 7:

Page 11, leave out lines 9 and 10 and insert—

"(1A) In such proceedings, the court is bound by a decision mentioned in subsection (2) once any period specified in subsection (3) which relates to the decision has elapsed."

Page 11, line 16, after "Tribunal" insert "(on an appeal from a decision of the OFT)""

Page 11, line 20, leave out subsection (3) and insert—

"(3) The periods mentioned in subsection (1A) are—

(a) in the case of a decision of the OFT, the period during which an appeal may be made to the Tribunal under section 46 or 47 or the EC Competition Law (Articles 84 and 85) Enforcement Regulations 2001 (S.I. 2001/2916);

(b) in the case of a decision of the Tribunal mentioned in subsection (2)(c), the period during which a further appeal may be made under section 49 or under those Regulations;

(c) in the case of any decision which is the subject of a further appeal, the period during which an appeal may be made to the House of Lords from a decision on the further appeal; and, where any appeal mentioned in paragraph (a), (b) or (c) is made, the period specified in that paragraph includes the period before the appeal is determined."

Page 11, line 33, at end insert—

"(1A) Section 58A does not apply in relation to decisions made before the commencement of this section."

On Question, amendments agreed to.

Clause 22 [Relevant merger situations]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 8:

Page 13, line 21, leave out "£45 million" and insert "£100 million"

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I want to press the Government on this amendment. When we discussed the matter on Report, the noble Lord, Lord Sainsbury of Turville, supplied a number of figures for consideration. At the time, I said that I wanted to reflect on the information that he had put forward and consult more widely outside this House. Those with whom I have consulted, especially the CBI—and many others involved in industry and commerce in the wider sense—have urged me further to press the Government.

In the amendment I seek to delete the sum of £45 million and insert a reference to £100 million. When we debated the matter previously the Government admitted that they were dealing essentially with an informed estimate and that their method of calculation was not fool-proof. The CBI has reflected on the information put forward by the Government and has asked me to assert on its behalf the fact that it has carried out a considerable amount of research. The confederation sampled 522 companies, covering a wide range of industries, both high-tech and traditional, and produced a ratio of UK turnover to world-wide gross assets of 1.2:1. That ratio is supported by the rule-of-thumb test that turnover should be expected to exceed gross assets. Therefore, the new turnover figure should exceed the old £70 million gross assets figure. The Government's figure of £45 million fails the rule-of-thumb test.

I must also point out to the Minister that the Government have never responded to the proposal that allowance should be made for inflation, as the threshold was last set in 1994. They have used the old figure of £70 million in calculating an equivalent number of companies that would be caught by the new turnover threshold. Surely they should at least use the indexed figure of £85 million to calculate the number of affected companies.

On the Government's figures, about 7,500 companies would be caught by the £45 million threshold. If the Government were to accept the amendment and the £100 million threshold proposed by the CBI, that number would be cut in half and the regulatory burden on business would be reduced. That would also go some way towards making this a true enterprise Bill. I beg to move.

Photo of Lord Razzall Lord Razzall Liberal Democrat

My Lords, I should like to make two general points while expressing my support for the noble Lord, Lord Hunt, and his amendment. I intended to make such observations when the previous set of amendments was discussed. First, I know that I speak for my noble friend Lord Sharman, and others, on these Benches when I thank the Government for the way that they have dealt with the Bill. We have found this to be an extremely good example of your Lordships' House at its best. Indeed, that is in marked contrast to the way that another place treated the legislation.

Secondly, as the Minister will know, my noble friend and I have not intervened in debates on this issue as the Bill has passed through both the Committee and Report stages, although we have listened to the arguments. Having done so, it may come as a disappointment to the Minister to know that we believe that the noble Lord, Lord Hunt, is correct. We shall, therefore, be supporting him in the Division Lobby is he chooses to press the amendment to a vote.

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 the way in which they have approached the amendment. I respect the fact that the CBI has conducted research since we last debated the matter. The Government have undertaken a few inquiries in this respect. I acknowledge that the relationship between assets and turnover is not a straightforward one. If you are moving from an asset measure to a turnover measure—we are all agreed that that is the right approach—you must engage in a certain amount of approximation.

Our goal in selecting the level of the new turnover test is to bring within the scope of the merger regime broadly the same numbers of companies that currently qualify under the assets test. Our further research indicates that that is the case. It is not based on any rule-of-thumb relationship between assets and turnover; it is just a matter of looking at the turnover of British companies. You have to consider the situation sector by sector. Clearly, when considering property companies, assets will be very large and turnover need not be large according to whether they are disposing or acquiring. In the case of dotcom companies, the assets will probably be relatively small in relation to turnover. Indeed, for any company that is trading in high-value goods, the turnover will be high.

Whatever equivalence you make between assets and turnover, you will be excluding some companies in some sectors and including companies in other sectors that would not otherwise have been included. However, as one of the Bill's primary aims is the putting into place of an enhanced competitive regime, it would be very strange if we did what this amendment seeks to achieve and relaxed the regime for merger control from the outset by a significant reduction in the number of companies covered by the legislation. Anti-competitive mergers can result in significant harm to consumers and to the economy at large. That is the fundamental point. The OFT should be able to look at mergers that could give rise to such concerns.

The noble Lord, Lord Hunt, raised the question of indexing. I am not persuaded that this is a key point. When thresholds are revised, they are obviously intended to last for a period of time. They are not intended just to fit the year in which the adjustment is made. For example, the adjustment to the assets figure prior to 1994 was made in 1984—a 10-year interval. We believe that the prudent approach is to make the transition from an assets to a turnover test, and then to keep that under review. I am perfectly prepared to say not only that there is a mechanism in the Bill to ensure that the threshold is kept under review, but also to make a specific commitment that the Government will review the turnover threshold within three years of the commencement of the new regime. However, if change is recommended before that time, we would consider the case for an earlier revision. I trust, therefore, that the amendment will not be pressed.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I have no wish to compare the Minister to Don Quixote, but I believe that he is being rather quixotically chivalrous in asserting the importance of inflexible approximation. That is, indeed, what he tried to put forward. Surely, it is important to start off with the right figure. However much one commits to review the figure, the important principle is to ensure that the figure that appears initially in the Bill is correct. That is why I want to press the amendment and test the opinion of the House.

On Question, Whether the said amendment (No. 8) shall be agreed to?

Their Lordships divided: Contents, 119; Not-Contents, 112.

Division number 2 Private Parking: Ports and Trading Estates — Enterprise Bill

Aye: 117 Members of the House of Lords

No: 110 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Resolved in the affirmative, and amendment agreed to accordingly.

Clause 33 [Supplementary provision in relation to anticipated mergers]:

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) 5:10 pm, 28th October 2002

moved Amendment No. 9:

Leave out Clause 33 and insert the following new Clause—

"SUPPLEMENTARY PROVISION IN RELATION TO ANTICIPATED MERGERS

(1) The Secretary of State may by order make such provision as he considers appropriate about the operation of sections 26 and 28 in relation to—

(a) references under this Part which relate to arrangements which are in progress or in contemplation; or

(b) notices under section 41(2), 58(2) or 66(2) which relate to such arrangements.

(2) An order under subsection (1) may, in particular—

(a) provide for sections 26(5) to (8) and 28 to apply with modifications in relation to such references or notices or in relation to particular descriptions of such references or notices;

(b) enable particular descriptions of events, arrangements or transactions which have already occurred—

(i) to be taken into account for the purposes of deciding whether to make such references or such references of a particular description or whether to give such notices or such notices of a particular description;

(ii) to be dealt with under such references or such references of a particular description or under such notices or such notices of a particular description."

On Question, amendment agreed to.

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

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 Amendments Nos. 10 and 11:

Page 28, line 20, after "decision" insert "made by virtue of subsection (2)(b) of section 32 or a decision"

Page 29, line 44, leave out "and 33"

On Question, amendments agreed to.

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

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. 13:

Page 52, line 21, leave out "and 33"

On Question, amendment agreed to.

Clause 67 [Scheme for protecting legitimate interests]:

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 Amendments Nos. 15 and 16:

Page 54, line 37, at end insert—

"(5A) Regulations under subsection (4) above may, in particular, make provision enabling the Secretary of State or the OFT to determine matters of a description specified in the regulations (including any of the matters mentioned in paragraphs (a) and (b) of subsection (5) above)."

Page 55, line 19, after "Act" insert "and any provision made under section 33 of that Act"

On Question, amendments agreed to.

Clause 106 [Further publicity requirements]:

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. 17:

Page 80, line 29, at end insert "(other than a decision made by virtue of subsection (2)(b) of section 32)"

On Question, amendment agreed to.

Clause 119 [Review of decisions under Part 3]:

[Amendment No. 18 not moved.]

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 19:

Page 90, line 23, leave out subsection (4) and insert—

"(4) The Tribunal may confirm or set aside the decision which is the subject of the appeal and may—

(a) remit the matter to the OFT, the Secretary of State or the Commission as the case may be (the "original decision maker");

(b) cancel or vary any conditions or obligations imposed by the original decision maker;

(c) give any directions or take such steps as the original decision maker could have made; or

(d) make any other decision which the original decision maker could have made."

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I am rather puzzled by the way that Amendments Nos. 19 and 20 have appeared in the Marshalled List. Looking back to Committee stage, I believe that one of these two amendments was tabled by the noble Lord, Lord Razzall, in a group of Liberal amendments, and the other by Her Majesty's loyal Opposition. In my submission, although they refer to slightly different parts of the page in the Bill, the effect of them is similar. Therefore, I shall speak to Amendments Nos. 19 or 20, as the Minister wishes.

As your Lordships are well aware by now, in contrast with appeals under the Competition Act, this Bill provides only for a form of judicial review for decisions taken on mergers. Given that the Competition Commission is to take decisions about mergers, and where it thinks necessary impose conditions, we believe that its decisions should be capable of substantive review.

In Committee, the noble Lord, Lord Sainsbury of Turville, stated that in relation to merger investigations the Government continue to believe that a review based on judicial review is the right means for challenging a decision. That type of review by the court would ensure that the procedures followed by the authorities are fair and that the parties are given the opportunity to put their case. Such a review would allow the court to re-examine any decision taken by the authorities to determine whether it was reasonable.

Our view is that the Government are creating a Byzantine structure for competition issues, with some appeals going to the Competition Appeal Tribunal and others going to the High Court; the Competition Appeal Tribunal having jurisdiction over complex regulatory appeals but not mergers.

A merger will be referred to the Competition Commission if the OFT "believes" that it might lead to a substantial lessening of competition. The full analysis will be carried out by the Competition Commission, including such matters as market definition. In these circumstances, the only detailed review will be carried out by one body, in contrast to competition cases where there will be a review carried out by two separate bodies.

It is, in our submission, not sufficient for the court merely to decide if the Competition Commission has acted reasonably—in the sense that the word "reasonably" is used in judicial review proceedings. In our view, the appeal tribunal should satisfy itself that the parties, including the OFT and the Competition Commission, have correctly analysed relevant material. It may be said that, in mergers, time may not permit a full appeal; but that surely is for the parties to decide. Time considerations have not stopped significant appeals being heard by the European Courts which have shown themselves willing to hear more evidence than would normally be the case in judicial reviews.

Some experiences of the recent Airtours case show how important it is to have an in-depth examination by an appeal body. I refer by way of example to paragraphs 125 to 130 of the court of first instance's judgment of 6th June 2002, case T-342/1999 Airtours. In particular, the European Commission relied on what it called,

"a recent study for a major tour operator", to show that demand growth had been low and was still to fall to zero. That statement is to be found at paragraph 125. The court of first instance found on analysis that the commission had not seen the full study, but had quoted from a one-page extract submitted by a respondent to a request for information. That emerges from paragraph 128. Moreover, the extract did not support the commission's interpretation—paragraph 29—and referred to,

"a massive increase in foreign holiday sales", over the past 20 years. In the outcome the court of first instance held:

"It follows that the Commission construed that document without having regard to its actual wording and its overall purpose".

That conclusion is to be found in paragraph 130.

This amendment was discussed on Report. Since the decision in Airtours, the court of first instance has annulled a second EC Commission decision blocking a merger. That is case T-310/01 Schneider Electric SA. Here the court criticised the Commission's standard assessment, including its market analysis and its analysis of the so-called "portfolio power" of the proposed merged firm's brands. The court cited specific mistakes in relation to the Commission's analysis of the Danish and Italian markets.

In addition, the court criticised the Commission for a number of procedural errors. In those circumstances, we do not believe it is sufficient for the Government simply to say that the parties are entitled to a judicial review and not a form of appeal which allows a review of the substance of the decision. Time will of course be a factor; but the Competition Appeal Tribunal could adopt, as the court of first instance has done, a fast-track procedure which might be suitable for certain merger appeals. It should be noted that, although, technically, an appeal to the court of first instance is a form of judicial review, as noted above, the European courts have shown themselves willing to hear more evidence than would normally be the case in judicial reviews.

I apologise for speaking to this amendment at such length at this stage, but there have been important legal developments in recent weeks. I think your Lordships should have an opportunity to consider those. I beg to move.

Photo of Lord Borrie Lord Borrie Labour 5:15 pm, 28th October 2002

My Lords, I oppose Amendment No. 19 or Amendment No. 20, whichever it is we are discussing. One of the great merits of the merger provisions of this Enterprise Bill, and one with which Her Majesty's Loyal Opposition fully agree, is that as a general rule the competition authorities—the Office of Fair Trading and the Competition Commission—will make the appropriate decisions without ministerial involvement. They will do so on the merits and, in particular, on the question of whether the merger is likely substantially to lessen competition in the appropriate market. Such a decision—first by the Office of Fair Trading and then, if it is so referred, by the Competition Commission—will require a large element of judgment and discretion. It is inappropriate for such a decision on the merits of allowing a merger to proceed or not to be made on the basis of law or precise judicial precedents.

Judicial review by the courts, for which the Bill provides, is important to ensure that bodies such as the Office of Fair Trading and the Competition Commission are accountable, that they remain within the law and the rules of procedure laid down for them—including that the Competition Commission must give reasons—that they comply with the rules of natural justice and that everyone has had a fair opportunity to state his case. It is not appropriate to replace ministerial involvement—which we all agree should be discarded—with judicial involvement on the merits of the case. It is inappropriate for a judicial body—admittedly, as has been said, a specialised judicial body—such as the Competition Appeal Tribunal to substitute its judgment and discretion for that of the Office of Fair Trading and the Competition Commission.

Although I am as interested as is the noble Lord, Lord Kingsland, in recent developments across the water in Brussels and Luxembourg, neither previous governments nor this one have sought to move to a fully judicial system to determine whether mergers are allowed in the interests of competition. I therefore shall not go down the same road as the noble Lord of discussing the position there. The Commission may have the same name as our Competition Commission but, in Brussels, the Commission determines the matter initially and makes the decision at first instance. In this country, two bodies have, as it were, a separate go at it—at any rate, if the Office of Fair Trading considers that there is sufficient case to go to the Competition Commission. That is not analogous with the position in Brussels and Luxembourg.

It is highly appropriate that the Government should provide that the Competition Appeal Tribunal must ensure that those bodies act according to law, proper procedure and so on, but that the merits should be left to the Competition Commission.

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 somewhat puzzled by the Opposition's approach to the issue here in Part 3 on mergers and in Part 4 on market investigations. The same criteria applied when we discussed those matters previously. Yet, lo and behold, we now have Amendment No. 18, which would restrict who can go to appeal, but is balanced by amendments that would widen the grounds for appeal. Amendment No. 18 has not been moved, so we are left with the proposal to widen the grounds for appeal in Amendments Nos. 19 and 20, with no restriction on who can appeal.

On Thursday, by tabling Amendment No. 29 to Part 4, the Opposition proposed the restriction on who can go to appeal but no amendment to widen the grounds for appeal. Amendment No. 30 was then tabled at the last minute, so we now have provisions that seem to be in line with what was argued previously, but not with what has been argued today. So something strange is going on that is not entirely clear to me.

We listened carefully to what was said in Committee, on Report and today. We share the desire to give parties the tools that they need to challenge decisions made by the competition authorities and to have as much legal certainty as is practicable. We are just as keen that whatever review mechanism we introduce should be effective in holding the competition authorities to account. We have been prepared to consider whether we can provide greater legal certainty.

We are consulting on how long parties should have to bring an action. One starting point was three months, but we are now seeking views on whether that should be just one month in the case of a merger decision. We have not come to a final view but we are consulting and demonstrating willingness to modify the review mechanism in the light of concerns expressed in the House and by the business and legal communities.

We are puzzled by Amendment No. 20, which seems to mix judicial review with the characteristics of a full appeal by leaving subsection (4) untouched. We cannot see how that would work technically. Judicial review grounds focus on whether a decision is reasonable and whether the procedure followed was fair. In most cases, that would not provide the tribunal with the material that it would need to substitute the decisions of the original decision-maker.

However, even at Third Reading, I shall not concentrate too much on technical difficulties. I think that it is common ground that full appeal could be wider in scope than judicial review. We must ensure that parties have access to the justice that they need to protect their rights and that the competition authorities can be held to account for their actions.

The intellectual argument for judicial review is strong and compelling. First, decisions by the competition authorities in merger cases do not lend themselves to full rehearing. Such decisions are not right or wrong; they are reasonable or unreasonable. That is what must be assessed. A full rehearing would not necessarily lead to a more just outcome; it would just substitute one set of views for another. Secondly, judicial review-type appeals will ensure that parties' rights are protected. They will pick up any material procedural irregularities or material errors of fact that have led to an unfair process or conclusion.

Finally, this approach to appeals is based on an effective division of responsibilities between the competition authorities and the tribunal. The tribunal will become quick and expert in policing its decisions, ensuring that the process is fair and the outcome reasonable. The actual taking of the complex case-by-case decisions will remain with the competition authorities, ensuring that they take greater responsibility for decisions and leading to greater consistency in decision-making.

The noble Lord, Lord Kingsland referred to the Airtours case at the court of first instance. But that was closer to a judicial review. It did not carry out a full appeal on the merits. The court may have gone into more detail than would the UK courts, but it considered similar issues: errors of law; fairness of procedures; and reasonableness of decision. That is what a competition appeal tribunal would do.

Similarly, the Schneider-Legrand case, to which the noble Lord referred, overturned the decision to prohibit the merger but again on comparable grounds to that of judicial review in this country. The court found errors, omissions and contradictions in the Commission's economic reasoning and that the procedure followed was flawed because there was a discrepancy between the initial statement of objections shared with the parties and the Commission's final decision. That left Schneider with no opportunity to propose appropriate corrective measures. Those are judicial review considerations, not what the amendments would achieve. As a result, Schneider may acquire Legrand by correcting what was a faulty decision—in what, for the court of first instance, is a relatively short time.

I can leave out what I was going to say about limiting the number of people who can appeal; that amendment has not been moved. However, I hope that it is clear that the analogies with Europe, the requirements for consistency and the extent of judicial review coverage mean that it would be a serious mistake to approve the amendments.

Photo of Lord Kingsland Lord Kingsland Conservative 5:30 pm, 28th October 2002

My Lords, I am grateful to the noble Lord for his response. In a way, his reaction to the amendment is consistent with his reaction to Amendments Nos. 1 and 2. Having created a specialised competition tribunal, the noble Lord is reluctant to give it any work to do. That is, perhaps, an exaggeration; but he is reluctant to give it all the work that taking the trouble to set it up merits.

If judicial review of a merger decision in the United Kingdom amounted to the same kind of review as that given to merger cases by the court of first instance in Luxembourg, I would reflect again on the wisdom of the amendment. However, our experience of commercial and competition judicial review in the United Kingdom leads to the ineluctable conclusion that judicial review—indeed, judicial review of commercial matters generally—is significantly less capable of investigating the kind of details that the court of first instance would investigate in a similar situation. That is because the judges have chosen not to trespass on the territory that has become so familiar to the court of first instance.

I shall not press the amendment to a vote. However, I hope that, between now and the time when the Bill goes to another place, the noble Lord will reconsider what he said—so that he can amend that part of the Bill accordingly.

As always, I listened with great care to the noble Lord, Lord Borrie. His experience of such matters is unsurpassed in your Lordships' House. I venture to take issue with the noble Lord to the extent that I believe that the United Kingdom has reached the stage at which it would be foolish for us to remain too far behind developments on competition matters in the European Community. It is clear that they are becoming more judicialised—for better or for worse—and we must also go down that path.

Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 20 not moved.]

Clause 120 [Fees]:

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 Amendments Nos. 21 and 22:

Page 92, line 3, leave out "(determined in accordance with the order)" .

Page 92, line 7, at end insert—

"(4A) For the purposes of subsection (4)(c)(ii) the turnover of an enterprise shall be determined in accordance with such provisions as may be specified in an order under this section.

(4B) Provision made by virtue of subsection (4A) may, in particular, include provision—

(a) as to the amounts which are, or which are not, to be treated as comprising an enterprise's turnover;

(b) as to the date or dates by reference to which an enterprise's turnover is to be determined;

(c) restricting the turnover to be taken into consideration to turnover which has a connection of a particular description with the United Kingdom.

(4C) An order under this section may, in particular, in connection with provisions of the kind mentioned in subsection (4A) make provision enabling the Secretary of State or the OFT to determine matters of a description specified in the order (including any of the matters mentioned in paragraphs (a) to (c) of subsection (4B))."

On Question, amendments agreed to.

Clause 123 [Orders and regulations under Part 3]:

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 Amendments Nos. 23 and 24:

Page 93, line 27, after "section" insert "33 or"

Page 93, line 39, after "section" insert "33,"

On Question, amendments agreed to.

Clause 130 [Power of OFT to make references]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 25:

Page 100, line 28, after "competition" insert "to an appreciable extent"

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, it may assist the House if I indicate that, in moving Amendment No. 25, I shall speak also to Amendments Nos. 27 and 28. Unless other noble Lords press the point, it is not necessary to have a separate debate on those amendments, as they seek the same effect.

The amendment would add a degree of materiality in deciding whether to open what are potentially lengthy and costly investigations. The wording of the amendment is consistent with the Competition Act 1998 and with European competition law. I must admit that I borrowed that language, so that the clause would be consistent with the Act and EC competition law, both of which require an effect on competition to be appreciable for an adverse finding to be made. I hope that the Minister will accept the amendments.

So far, the Government's position has been that it is unnecessary to add the qualification because it would be unreasonable for market investigation references to be used for trivial competition policy. The OFT's draft consultation paper on market investigation references, which was published last July, does not specifically say that references will be made only if competition is distorted to an appreciable extent. If the policy is that there should be some sort of threshold in practice, the joint working party's view is that the legislation should say so. I beg to move.

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 shall not make a point about the fact that we are now discussing the word "appreciable", whereas we previously discussed the word "significant". There is no significant or appreciable difference between the words. The arguments that were used against the word "significant" can be used equally well against "appreciable". The noble Lord, Lord Hunt of Wirral, gave us the benefit of a repetition of the arguments that were used. Those arguments are true.

Market investigations exist to investigate and, where possible, rectify potentially significant competition problems. They are not a way of launching huge data-gathering exercises on a whim. The OFT has explained in its draft guidance, which is in the Library, what factors it will take into account when considering a possible market investigation reference. It will not use those powers lightly. Only when the OFT's preliminary inquiries suggest that there are potentially significant or appreciable—whatever word we use—competition concerns will it be justified in subjecting the industry to the more rigorous scrutiny of the Competition Commission. If the OFT were to refer what appeared to be a trivial case, as the noble Lord suggested, it would find itself having to defend the reasonableness of its decision before the Competition Appeal Tribunal.

What would we add by putting that in the Bill? We are concerned here with principles of economic analysis that cannot be reduced to statutory language. In ministerial statements of policy, we can explain properly how the reference powers will be operated. We can take account of materiality concerns, but we do not think that such matters can be more accurately or usefully conveyed by incorporating them into the clause. It could be said that the words "to an appreciable extent" would introduce an element of confusion. By themselves, they would not enshrine in statute all the matters that the OFT might be expected to take into account when deciding whether it had identified possible competition problems. Even if we were to add explicit references to all those matters, we would still be left with the fact that the OFT was operating a discretionary power of reference and must use its judgment in each case to decide what weight to give to all the various factors.

Our approach is broadly in keeping with the Competition Act 1998, Article 81 of the EC treaty and the existing monopolies regime. None of those explicitly requires that there should be a significant, substantial or appreciable effect on competition. The question of materiality, to which the noble Lord, Lord Hunt of Wirral, referred, has been a matter for case law and guidance, rather than the drafting of primary legislation.

As regards Amendments Nos. 27 and 28, I cannot add much to what my noble friend Lord Sainsbury said. I can deal with the comparison which the amendments raise between market investigations and the provisions in Article 81 of the EC treaty and Section 2 of the Competition Act. Those provisions prohibit anti-competitive agreements where they prevent, restrict or distort competition to an appreciable extent. That qualification exists as a result of case law and guidance rather than being explicit on the face of the legislation concerned. There are reasons—I could go into them in detail but I will not—why it would be inappropriate to put a similar qualification into the clause.

Conformity with the Competition Act and Article 81 does not justify the amendments, nor do they have anything to commend them. I am sorry to be negative about the matter but we have debated it on a number of occasions and the argument for the amendment is no stronger.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, the Minister has made a significant concession, which has moved me to an appreciable extent. I therefore 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. 26:

Page 101, line 22, at end insert—

"( ) In this Part the words "prevents, restricts and distorts competition" are to be given the same meaning as the equivalent words in the Competition Act 1998 (c. 41).""

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

My Lords, Amendment No. 26 seeks to add a subsection to Clause 130 to make clear what the noble Lord, Lord Sainsbury of Turville, conceded in Committee when I moved Amendments Nos. 95, 102 and 105 to what were then Clauses 126 and 129.

The noble Lord, Lord McIntosh, made a facial gesture when I said that the noble Lord conceded the point, but it will become clearer why we have tabled 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)

My Lords, perhaps the noble Lord, Lord Phillips, will allow me to intervene. I become suspicious when people talk of concessions. I made no concessions to the noble Lord, Lord Hunt, and I do not believe that my noble friend Lord Sainsbury made any concessions to the noble Lord, Lord Phillips.

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

My Lords, it will become clear what I mean. The amendments tabled in Committee were designed to clarify that the making of any market reference in relation to the legal profession should take into account the special public interest considerations relevant to the supply of legal services. They were, as proposed in the amendments, to be able to take account of the interest of the sound administration of justice, the interests of the consumers of justice and of those lacking the same. In reply, the noble Lord, Lord Sainsbury, recognised the importance of the issues raised and said:

"The sound administration of justice and the promotion of access to justice are matters of the utmost concern to this Government".—[Official Report, 15/10/02; col. 818.]

He also recognised that the rules of the legal profession would be more appropriately dealt with under the Competition Act 1998 rather than by way of a market reference under the Bill. He nevertheless accepted that such rules were capable of being subject to a market reference under the provisions of the Bill—now in Clause 130—but concluded that the amendment was unnecessary on the grounds that the sound administration of justice and access to justice were capable of being addressed under the customer benefit provisions of the Bill. That is why I said that the noble Lord, Lord Sainsbury, conceded the points of the amendments moved in Committee.

However, both the Law Society and the Bar Council, which are taking a direct and close interest in the amendment, regard it as undesirable for such issues to be addressed only in that context. Under the scheme of the Bill, customer benefits fall to be considered in the context of remedies once an adverse effect on competition has been identified. Clause 130(2) provides that an adverse effect on competition arises if any feature of the market prevents, restricts or distorts competition.

As regards professional legal rules, these may well restrict competition while having effects that are purely beneficial, as the European Court of Justice found in the Wouters case (C-309/99). The effect of such rules should not be treated, therefore, as "adverse effects on competition", as they apparently would be in the light of Clause 130. We believe that the key words,

"prevents, restricts or distorts competition", in Part 4 of the Bill should be interpreted in the same way as the equivalent words are interpreted in the Competition Act and under Articles 81 or 85 of the EU treaty. Then it would be clear that in circumstances such as those of the Wouters case, which was a partnership between lawyers and accountants, rules reasonably considered necessary for the proper practice of the legal profession were not to be treated as preventing, restricting or distorting competition.

We also believe that the Bill should contain provisions that make it explicit that this is the intended basis of interpretation, just as the Competition Act in Section 60 makes clear that it is to be interpreted consistently with the corresponding provisions of Community law. Section 60 states:

"At any time when the court"— that is to say, the English court—

"determines a question arising under this Part, it must act ... with a view to securing that there is no inconsistency between—

(a) the principles applied, and decision reached, by the [English] court in determining the question; and

(b) the principles laid down by the Treaty and the European Court".

However, both the Law Society and the Bar Council strongly believe that the presence on the face of this mammoth Bill of an explicit provision such as that in the amendment would give a great deal of clarity. It would also avoid the prospect of different interpretations being used with regard to the words concerned. Above all, especially given the Government's repeated commitment to clarity of drafting and accessibility, it will make it abundantly clear on the face of the Bill that there should be a read-across to the relevant Euro law and the Competition Act 1998.

The amendment is wholeheartedly supported by the two professional bodies not out of self interest but because it should make the Bill, which is difficult enough, more comprehensible even to lawyers. It has the merit, which I hope the Government will see, that whereas in Committee the three amendments referred specifically to the legal profession, Amendment No. 26 does not. It applies to any body coming before the OFT or the Competition Commission and there avoids that criticism. I beg to move.

Photo of Lord Brennan Lord Brennan Labour 5:45 pm, 28th October 2002

My Lords, I support the amendment. At the Report stage, which unfortunately I was unable to attend, a debate took place which the noble Lord, Lord Phillips, led on the balance to be struck between the interests of competition as an economic principle and the interests of the community to have quality of justice. The one should not be invoked at the cost of the other.

During the debate, as I read it, my noble friend Lord Sainsbury, in a clear and forthright manner, accepted the strength of the argument that we should be careful not to damage the quality of justice by remorseless pursuance of market principles of competition. If to describe that as a concession is to demean the quality of his agreement, I will not use the word "concession". It was plain to be read as no doubt it was plainly said.

But the important issue is this. If a profession such as the law—or indeed any profession—wants to give quality of service to the public, there are certain features of that task which self-evidently cost money and which must be paid for through the fees that people charge. The examples are obvious. The desire for people to be properly qualified by continuous professional development and education must be in the public interest. The need to regulate by discipline those who breach the standards the public would expect to be observed has to be paid for. Within my own profession—the Bar—the fact that we are now debating a levy against existing barristers which will be used to allow people from poorer backgrounds to become barristers is surely an acceptable expense within that profession. It meets a good public objective.

If any of those practices, which all involve cost, are to be regarded as necessary, they should be taken into account if and when any questions of competitive practices arise within the legal or any other profession. That was recognised in the Competition Act 1998, where the prohibition under Section 2 against anti-competitive practices was coupled with an exception in Schedule 4 for all the main professions, the structure of the Act meaning that those professions could, if they were able to establish a public interest, justify practices which might at first sight appear to be anti-competitive.

That was recognised in that Act; that Act sought to be compatible with our European treaty obligations; and, as I understood the debate on Report, my noble friend the Minister made clear that should competition practices in the law or any other profession be investigated, it was most likely to be done under that Act. If that is correct, the assurance which all professions would seek is that the present Bill should not provide some other route for investigation of professional practice if the Competition Act already fulfils that requirement.

If there is some further area of competition principle which this Bill deals with but the Competition Act does not, I am sure that my noble friend the Minister will make that clear. If there is no such extra dimension, I am sure that he will make it equally clear that we fall to be dealt with under the other Act and that if and when the Bill and the Act ever came to be considered, they would each be given the same meaning. All we seek on behalf of the professions is legislative consistency and sense, an objective with which I have no doubt my noble friend the Minister will agree. I am sure that he will show an equal measure of clarity and forthrightness in his acceptance of our arguments as did his noble friend the Minister on the previous occasion.

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, the amendment is more subtle than the ones put forward in Committee and on Report. It is particularly subtle in that although it is evidently concerned with the legal profession it does not actually say so. I admire that in a way.

There are two levels to the amendment. At a simple level, the amendment proposes that references to the prevention, restriction or distortion of competition are to be interpreted in the same way as the same references in the Competition Act. Our only objection to that at a simple level is that it is superfluous. The formulation "prevent, restrict or distort" has no special meaning here which it does not have in the Competition Act, the monopoly provisions of the Fair Trading Act or in Article 81(1) of the treaty.

The OFT, in its draft guidance on market investigation references, notes that,

"EC case law and the past practice of the CC both indicate that the phrase should be interpreted broadly to encompass any reduction or dampening of actual or potential competition".

In our view, references to the prevention, restriction or distortion of competition already are to be given the same meaning as references to those concepts in the Competition Act because in both contexts the words concerned are used in the ordinary and natural meanings.

I could stop there, but to do justice to the amendment I have to refer to the question of legal professional rules because that is what the supporting speeches were about. Broadly speaking, the rules governing the provision of legal services in the United Kingdom are of two kinds: those made by statute and those made by the Bar Council and the Law Society. Rules made by statute are not the concern of this amendment. They do not fall within the Competition Act prohibitions or their EC equivalents and it is not within the power of the Competition Commission to change them in any way. Any action to modify such rules would be taken by the Government and Parliament.

Legal professional rules made by a body such as the Bar Council are likely in many cases to be considered to be decisions of undertakings within the meaning of Article 81(1) of the EC treaty. I understand that the Bar Council has agreed that that is the case. If the rules restrict competition to an appreciable extent and have an effect on trade between member states of the European Union, they may be prohibited under Article 81. There are a number of ways in which they may escape being prohibited, but the important thing to note is that it will be impossible for the Competition Commission, following a market investigation, to use its powers under Clause 160 to prohibit any rule which falls within the ambit of Article 81 but is not prohibited by it. This is because of the provisions of the draft new regulation for the application of Articles 81 and 82, which will implement the so-called "modernisation" of European Community competition law. We expect this to come into force before any investigations under Part 4 have been concluded.

The new regulation is expected to provide that national competition authorities must always apply Articles 81 and 82 where they are applicable and may only apply national competition law in such cases if the result of the national law proceedings is compatible with the result under Community law. So a professional rule which falls under Article 81(1) but would not, for whatever reason, have been prohibited under Article 81, will not be capable of being prohibited as a result of a market investigation. On the other hand, if a professional rule is prohibited under Article 81, no provision of national competition law can save it.

The only situation in which the Competition Commission will be empowered to take remedial enforcement action in respect of a professional rule is where that rule is not made by statute and is not a decision of an association of undertakings within the meaning of Article 81(1). Given the case law of what constitutes an association of undertakings, it may be that no legal professional rules at all fall into this category. However, in case there should be any such rules, I shall review the possible outcomes of the Competition Commission's analysis of them under Part 4.

In the normal way, assuming no public interest intervention, there are essentially four possible outcomes. The first is that the Competition Commission may find that the rule in question does not prevent, restrict or distort competition at all. The second is that the commission may find that a rule has both adverse and beneficial effects for competition. Having identified the adverse effect on competition, the commission would be bound to consider what could be done to remedy it. If the pro-competitive effects of the rule outweigh its restrictive effect, and if the rule could not be modified in such a way as to preserve its pro-competitive consequences while removing its restrictive effect on competition, then it would not be reasonable to seek to change it. On the other hand, if it were possible to modify a rule in that way, then it would be reasonable.

A third possible outcome is that the Competition Commission is certain that a rule has, overall, an adverse effect but decides not to take action to remedy that adverse effect because the rule concerned also has positive consequences, not in terms of competition but because it gives rise to relevant customer benefits—a point made by both the noble Lord, Lord Phillips, and my noble friend Lord Brennan—within the meaning of Part 4. These benefits would consist of services being provided, whether generally or to particular groups of customers, at a lower price—a point that was not made—to a higher professional standard, more innovatively or in a way which gives customers greater choice. Given the circumstances of the legal profession, and the kind of rules that might be under investigation, the concept of "customer benefits" may be found to be a more permissive one than the Article 81(3) exemption criteria were found to be in the Wouters case. That case related to rules of the Dutch Bar. I do not think that we can read across directly to the rules of the Bar Council.

Finally, the Competition Commission may simply decide that the rule restricts competition, that it has no redeeming features in terms of distinct pro-competitive effects, and that it either gives rise to no relevant customer benefits or that those that it does produce are not such as to outweigh the adverse effect that it has on competition. It will then be for the commission to consider what steps it is reasonable and practicable to take to remedy, mitigate or prevent the adverse effect on competition and any detrimental effects on customers.

Of the four possible outcomes, three are likely to leave the hypothetical professional rule intact, while only one is likely to threaten it. If the supporters of this amendment are correct in their assessment of the value of legal professional rules—it is a wider subject than I want to enter into now—this last outcome is all but inconceivable. In any event, we do not think that the likelihood of any of the above outcomes would be affected one way or the other by making this amendment.

I must apologise for the length of my response, but when dealing with lawyers we have to go into a certain amount of detail.

To summarise, the words,

"prevents, restricts and distorts competition", have no special meaning here or in the Competition Act. The legal professional rules made by statute fall outside competition law altogether. The fate of rules which constitute decisions of associations of undertakings will be decided not by the Competition Commission but in accordance with Article 81. Any rules which do not fall into either of these two categories will be subject to remedies by the Competition Commission following a market investigation only if the Competition Commission determines that they do not in fact bring the benefits which their supporters claim for them. All of this would still be the case were the amendment to be accepted, and it would add nothing to the Bill. I ask the noble Lord to withdraw it.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Liberal Democrat 6:00 pm, 28th October 2002

My Lords, first, I should express considerable gratitude to the Minister for his detailed response. It will cause a little reading late into the night and, heaven knows, might even induce a little sleep. It was an important speech. Clarity, so far as one can have it in this sphere, is very important.

The crucial point, as the Minister twice made clear, is that if this amendment were on the face of the Bill it would not change the Bill's effect. He refuses to accept the amendment solely because it is unnecessary; it is superfluous. That was precisely the position taken on Report by the noble Lord, Lord Sainsbury of Turville. I apologise for referring earlier to the Committee stage; we discussed this matter on Report. That, at least, has been made abundantly clear by the exchanges that we have had in this House and that will be valuable and important.

The Minister made reference to Wouters, saying that the case related to the Dutch Bar and that there is no read across. In a literal sense, no, there is not; but the ratio of the decision is directly relevant to the interpretation of this Bill and of the Competition Act. It was to make clear that and similar points that we wanted this provision on the face of the Bill. It would have helped in its future interpretation. However, in the circumstances, I do not think that there is any question of dividing the House. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 133 [Questions to be decided on market investigation references]:

[Amendments Nos. 27 and 28 not moved.]

Clause 178 [Review of decisions under Part 4]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 29:

Page 135, line 14, at end insert—

"( ) For this purpose "any person aggrieved" shall mean any person who is a subject of the reference or possible reference and who is directly affected by the decision."

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, in moving this amendment, I shall speak also to Amendment No. 30.

Although I am moving Amendment No. 29, it has been spoken to sufficiently both in Committee and on Report for me to remain silent on it at Third Reading. I misled the Minister with respect to the equivalent amendment under Part 3 of the Bill. I had meant to move it but to say that I should not speak to it for the same reasons as I shall not speak to it in relation to market investigations.

The Minister is aware that the intention of Amendment No. 30 is to provide for a substantive appeal on the merits from decisions of the Competition Commission rather than the more limited form of judicial review proposed in the Bill. In contrast with appeals under the Competition Act, this Bill provides only for a form of judicial review for decisions taken under the new market investigation powers.

This amendment has some similarities to the amendment that we tabled to Part 3 of the Bill in respect of mergers. However, in my submission, it is of even greater importance. The degree of initial consideration given to potential market investigation is much less than the degree of consideration given at an initial stage to proposed mergers.

In Committee, the noble Lord, Lord Sainsbury of Turville, stated that, as with mergers, the Government continued to believe that a review based on judicial review was the right means of challenging decisions taken on market investigations. As with mergers, discretion is given to the authorities and I accept that in the Alconbury case suggests that, to a limited extent, material error could be grounds for intervention in judicial review cases. These arguments are to be found at col. 1528 of Hansard for 18th July.

However, in our view, the effect of the Bill as drafted is that in these cases, there will be only one examination—by the Compeitition Commission—with no other body empowered to check and confirm the facts as found or the conclusions drawn by it. The Office of Fair Trading will not have carried out any detailed review before making the reference to the commission: this is made clear by the draft guidelines on market investigation references published in July 2002. Under Clause 126, there is a relatively low threshold for making market investigation references: the OFT must have "reasonable grounds for suspecting" that competition is prevented, restricted or distorted in some markets in the UK. In paragraph 3.7 of the draft guidelines the OFT states that it,

"will not attempt to make more than a preliminary analysis", before making a reference. This is borne out by paragraphs 2.11 and 2.19.

As I have noted, the route taken by the OFT will have a fundamental impact on the rights of the parties concerned and, in particular, on their right of appeal. There is no logic in creating an expert competition appeal tribunal if significant competition cases are required to be heard by the High Court under judicial review—a refrain that the Minister has heard on more than one occasion during today's debates. Moreover, as I have noted in connection with mergers, we very much doubt that judicial review will give the courts sufficient jurisdiction to ensure that the evidence has been correctly analysed and the appropriate conclusions drawn.

The Minister's reaction on Report did not change. It was, in substance, the same as that in relation to merger references. Yet the arguments are even stronger in relation to market investigations than they are in relation to mergers, for two reasons. First, although no fine would be imposed, should the outcome of a review be adverse to a particular company the remedies which may be available are extensive and include divestment of a business. Secondly, in some cases, the OFT will have the choice between a Chapter 2 investigation and a market investigation with, as already observed, significant differences in relation to the rights of the parties concerned and in particular their right of appeal.

Moreover, as in the case of mergers, judicial review will not necessarily offer redress against areas in relation to, say, market definition, degree of competitiveness in a market and the many other aspects involved in an investigation. I beg to move.

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, nine-tenths of what I could say now I said on the earlier amendments on mergers. The arguments for judicial review as opposed to a total rehearing are unchanged, and it would be unfair of me to subject the House to them again.

I ought to refer to the point that the noble Lord, Lord Kingsland, raised today and in correspondence with my noble friend Lord Sainsbury; that is to say, the choice that the OFT might have between a market investigation and a Competition Act 1998 decision. I do not think that the noble Lord used the word bias, but he suggested that the OFT might be tempted to use one method rather than another because of the nature of the appeal proceedings. I think I understood the noble Lord correctly on that matter.

When the noble Lord raised the matter in Committee, my noble friend Lord Sainsbury sought to reassure him that no such bias would arise because the two different types of appeal were appropriate to two different types of decision. My noble friend wrote to the noble Lord on the 30th September with a copy of the guidelines that the OFT intends to publish on when it would pursue a market investigation and when a Competition Act decision. The clear message from the OFT is that it will always consider action under the Competition Act first, and that no account will be taken of the relevant appeal mechanism. I hoped that that would satisfy the request for objective guidelines and that the noble Lord would be prepared—I think he used these words himself—to move away from this amendment.

I do not expect the noble Lord to be satisfied with the judicial review arguments in the more general sense, but we have had that argument and passed beyond that stage. I hope that this amendment will not be pressed.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I think I made it clear in my initial observations that I regard the case against judicial review in market investigations to be even stronger than in the case of mergers.

That is partly for the reason on which the Minister has reassured me, for which I thank him. But, more importantly, it is also because the initial stage of the investigation of a potential market distortion is, in my submission, little short of derisory. There is only one real bite at the cherry, and that is insufficient.

Given the approach of the courts to commercial judicial review, I have little hope that the kind of review that will be offered to a complainant will look properly at the substance of the decision taken. It is important that the substance of decisions is looked at carefully. Quite apart from the issue of fairness, it will keep the investigator on his toes. For that reason, although I did not call a vote on mergers, I wish to test the opinion of the House.

On Question, Whether the said amendment (No. 29) shall be agreed to?

Their Lordships divided: Contents, 72; Not-Contents, 113.

Division number 3 Private Parking: Ports and Trading Estates — Enterprise Bill

Aye: 70 Members of the House of Lords

No: 111 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Resolved in the negative, and amendment disagreed to accordingly.

[Amendment No. 30 not moved.]

Clause 180 [Orders under Part 4]:

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) 6:25 pm, 28th October 2002

moved Amendment No. 31:

Page 136, line 38, at end insert—

"(8A) If, apart from this subsection, an order made by the Secretary of State under section 152(3) would be treated for the purposes of the standing orders of either House of Parliament as a hybrid instrument, it shall proceed in that House as if it were not such an instrument."

On Question, amendment agreed to.

Clause 187 [Cartel offence]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 32:

Page 143, line 8, at end insert—

"(1A) "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 (the prohibition) and not meeting the criteria in section 9 of the 1998 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 have debated the issue previously. I do not propose to set out the arguments in detail again. I shall merely say that there should be a clear definition of what constitutes a dishonest agreement.

Although we have attempted to define "dishonestly agrees" in the amendment, I hope the Minister understands that our prime purpose is to say that there ought to be a proper definition. If the Government can find a better one than ours, we should be very pleased to hear from them.

Clause 187 sets out the cartel offence. I can imagine defence counsel arguing that an agreement cannot be dishonest if it is exempted under UK competition law. That is a further reason why we need to provide a clear boundary for the criminal conduct. In doing so, surely the best way forward is to have linkage to the Competition Act in the definition.

In keeping with the principles of better regulation, the new offence should be set out in the clearest possible terms so that those affected can readily understand what they need to do, or not to do, to avoid committing a criminal offence. I beg to move.

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 the noble Lord, Lord Hunt, for—if the noble Lord, Lord Kingsland, will allow me to steal the word—the telegraphic way in which he introduced the amendment. I do not want to go over the ground again.

The definition in the amendment is not workable. In fact, it is worse than unworkable, because the offence would be effectively unprosecutable. The definition includes a requirement to prove knowledge of a breach of the Competition Act 1998. 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. Our objective of creating real deterrence against cartels would be undermined. I am utterly unconvinced by that part of the wording of the amendment.

I am also unconvinced because, just like the previous amendment on the subject, it includes the word "dishonest". In other words, it is circular. Trying to define dishonesty with the phrase,

"with the dishonest intention of causing detriment", takes us to a chicken and egg situation. I cannot see how we can get out of that. That is not just a debating point. It would be a debating point in Committee or on Report, but this is Third Reading. The provisions have got to be right now and this is wrong.

There is a perfectly good definition in case law—the Ghosh test meaning of dishonesty. As the noble Lord, Lord Hunt, did not go into any detail on that, I shall not do so either. It is all on the record. I hope the amendment will not be pressed.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I thought that the noble Lord, Lord Razzall, dealt with the Minister's point about the Ghosh case in the last debate, so I did not want to repeat that.

I greatly regret that the Minister is still unwilling to move on providing a proper definition in statute law. He relies solely on the definition in case law, which is not adequate. However, in the circumstances, as he is not willing to move, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 33 not moved.]

Clause 188 [Cartel offence: supplementary]:

[Amendment No. 34 not moved.]

Clause 189 [Cartel offence: penalty and prosecution]:

Photo of Lord Murton of Lindisfarne Lord Murton of Lindisfarne Conservative

My Lords, before I call Amendment No. 35, I must tell the House that if it were to be agreed to, I could not call Amendment No. 36 owing to pre-emption.

Photo of Lord Kingsland Lord Kingsland Conservative 6:30 pm, 28th October 2002

moved Amendment No. 35:

:TITLE3:Page 144, line 40, leave out subsection (2) and insert—

"(2) In England and Wales and Northern Ireland, proceedings for an offence under section 183 may be instituted only by the Director of the Serious Fraud Office with the consent of the OFT."

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, in moving Amendment No. 35, I intend also to speak to the amendments in the group beginning with Amendment No. 33 and the group beginning with Amendment No. 35. As the Minister may be aware, the Public Bill Office drew to my attention the infelicities of some of the amendments in these groups. On mature reflection, I must say that I agree with the Public Bill Office. I am therefore very happy not to move or speak to Amendments Nos. 33, 34, 37 and 38. However, in moving this amendment, I shall also speak to Amendments Nos. 36, 39 and 40.

This matter has been well rehearsed in Committee and on Report. The issue is the degree to which the OFT should become involved in criminal investigations. In the Government's response—of December 2001—to consultation, it was stated that they had decided that the SFO should be the lead prosecutor. The Minister is well aware that we agree with that. In our submission, however—and I believe that this view is shared by noble Lords on the Liberal Democrat Benches—the Bill does not reflect the Government's statement as it gives equal powers to the OFT and the SFO and also gives the OFT extensive criminal investigation powers.

The powers of the OFT to investigate civil infringements committed by companies under the Competition Act 1998 are very different from the criminal powers under this Bill. The rights of defence differ as well as the procedures. As the noble Lord, Lord McIntosh, has heard me say before, giving the OFT both sets of powers will lead to confusion, particularly as most criminal investigations are likely to stem from an initial investigation under the Competition Act. We question whether the checks and balances within, and the experience of, the OFT are sufficient to prevent confusion of the two roles.

Moreover, we do not accept the Government's view as stated in another place that an individual's trial would not be prejudiced by an adverse finding in respect of substantially the same matter against his employer company by, say, the Commission in Brussels under Article 81.

Nor do we think it appropriate that the chairman of the OFT, who has no experience of criminal investigations and prosecutions, should authorise surveillance on application by one of his officials under the Regulation of Investigatory Powers Act 2000. Instead, if the OFT is to have surveillance powers, application should be made to an independent judicial authority such as the Attorney General or a High Court judge.

In Committee, the noble Lord, Lord McIntosh, stated that the SFO and the OFT would work together in both cartel investigations and also decisions to prosecute. However, the noble Lord went on to say that it will be the SFO who will undertake any prosecution in England, Wales and Northern Ireland. The Government no doubt believe that this method will link the SFO's expertise in criminal prosecutions with the OFT's expertise in competition investigation. The noble Lord, Lord McIntosh, was anxious to underline 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.

I moved this amendment again on 15th October 2002 on Report. Although the Government stated in Committee that they did not envisage that the OFT would take on the role of prosecutor unless there was a change of circumstances in the future, the noble Lord, Lord McIntosh, said:

"The OFT would have to take time to develop the necessary capability and resource before it could take on a prosecution role".—[Official Report, 15/10/02; col. 841.]

That implies that it is intended that the OFT will in due course become a prosecutor.

Although it was argued that the OFT could have, in effect, Chinese walls to separate the investigatory from the prosecutorial function, it is a fundamental principle that distinctions in roles are transparent and capable of being understood by those affected by them. Given that the internal structure of the OFT can be changed at the instance of the management of the OFT, there is no guarantee for individuals that the internal divisions will be maintained, or maintained at an appropriate level.

As the noble Lord, Lord Razzall, pointed out (at col. 840 of the Official Report of 15th October 2002) the Government have resisted some amendments on the ground that they cover eventualities that might not arise. Here, the Government are specifically catering for a situation which they say is unlikely to arise.

I apologise to the noble Lord, Lord McIntosh, for returning to this matter, but we feel that there is a real risk of confusion of powers. It is crucial on an issue affecting the fundamental rights of the citizen that the Government ensure that the procedures laid down in the Bill are as fair as they possibly can be. I beg to move.

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 not entirely clear from what the noble Lord, Lord Kingsland, said at the beginning whether he is speaking only to Amendments Nos. 35 and 36 or speaking also to Amendments Nos. 39 and 40, which are concerned with the Regulation of Investigatory Powers Act. If it is the latter, I should reply to all four amendments.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I apologise to the noble Lord. I dealt with the group beginning with Amendment No. 33 and then spoke to Amendments Nos. 35, 36, 39 and 40. I thought that I had made that clear. I said that I would speak to both groups because I noted that the group beginning with Amendment No. 33 includes Amendments Nos. 37 to 41. I think that that is consistent with what I said.

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, the misunderstanding was my fault. I shall deal first with Amendments Nos. 35 and 36 and then go on to Amendments Nos. 39 and 40.

As has been said, Amendments Nos. 35 and 36 are similar if not identical to earlier ones which have been identified. The core of the accusation, if I may put it that way, is that it is inappropriate for the Office of Fair Trading to have concurrent investigation and prosecution powers with the Serious Fraud Office. The Bill provides for the SFO and the OFT to prosecute the new offence in England, Wales and Northern Ireland, but the expectation of the Government, the SFO and the OFT is that the SFO will carry out all prosecutions initially. The noble Lord, Lord Kingsland, has correctly quoted me as saying something like that on Report. The SFO 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.

Amendments Nos. 35 and 36 seek to amend the arrangements for the prosecution of the new offence. The effect is the same in both cases. I presume that the reference in Amendment No. 35 to Clause 183 should be to 187 under the new numbering. Both amendments would make the SFO the sole prosecutor, but subject its prosecutorial role to the consent of the OFT. On the latter point, it would be neither workable nor appropriate to give the prosecution role to the SFO but to deny it the discretion to take the final decision on which cases to prosecute. Of course, the SFO will work closely with the OFT on cartel cases which look likely to lead to criminal prosecution, but the final decision will rightly be theirs.

The noble Lord, Lord Kingsland, cast doubt on the kind of conflict that he claims might exist within the Office of Fair Trading as between its different responsibilities. The Director-General of Fair Trading commissioned an independent review to consider changes to OFT procedures required by the introduction of criminal sanction for cartels. That review was conducted by Sir Anthony Hammond, the former Treasury Solicitor, and Roy Penrose, Queen's Police Medal. They concluded that if the OFT were to prosecute,

"it would [also] 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".

That is not just their opinion. They talked to officials from Customs and Excise and the Inland Revenue, both of which have investigatory and prosecutorial powers. Therefore, I cannot accept that part of the argument of the noble Lord, Lord Kingsland.

As I have said, the OFT role initially will be solely as investigator. However, the Bill allows the flexibility for the OFT to take on a prosecutorial role at some time in the future, if that becomes appropriate. That might be the case if the number of cartel prosecutions created a conflict with other SFO priorities, although I should emphasise that we do not expect a large number of prosecutions. Again, the noble Lord, Lord Kingsland, reflected correctly what I said on Report. Before it could take on a prosecution role, the OFT would have to develop the necessary capability and resource. None of this is a new element of government policy—we said all this in our response to consultation in December 2001. We said that the SFO should be the,

"lead prosecutor in England, Wales and Northern Ireland with the OFT as an additional named prosecutor".

The clause as it stands is consistent with this policy. I hope that Amendments Nos. 35 and 36 will therefore not be pressed.

The noble Lord, Lord Kingsland, spoke also to Amendments Nos. 39 and 40. I could respond also to Amendment No. 41. These amendments concern powers of investigation. They would simply take out certain clauses. They would remove the power for the OFT to investigate the offence; the power to seek documents under notice; and any powers given to authorised persons. Some of the powers remain, but they are meaningless in the light of the proposed amendments. These powers are necessary to investigate the offence by the most appropriate investigatory body for such an offence—the Office of Fair Trading. These clauses authorise the OFT to investigate cartel offences and exercise important powers of investigation if there are reasonable grounds for suspecting that an offence under Clause 187 has been committed. The powers are intended to be tough and effective yet provide safeguards for those being investigated. They are broadly modelled on investigatory powers conferred on the Serious Fraud Office by the Criminal Justice Act 1987. The SFO is the intended prosecutor for this offence and may at a later stage of an investigation carry out some follow-up or additional investigation. For that reason it is necessary to align the OFT investigatory powers with those given to the SFO. The investigatory powers are restricted to this offence only; that is, cartels. The OFT will continue to investigate infringements of Chapters 1 and 2 of the Competition Act 1998 using powers specifically granted under that Act. Those powers are intended to facilitate civil investigations against undertakings.

The OFT can carry out an investigation if there are reasonable grounds for suspecting that an offence under Clause 187 has been committed. The powers of investigation cannot be used unless that threshold is met. Whether there are reasonable grounds for suspicion will depend on the information available. To remove those powers would make an investigation impossible and would render the new offence meaningless. For the new offence to carry a deterrent effect and to eliminate existing and future cartels appropriate powers of investigation are necessary. Those powers need to be accompanied by appropriate safeguards and also provide for the power to hold those responsible who obstruct justice and fail to comply with an investigation. The clauses provide the necessary powers of investigation, adequate safeguard and appropriate offences.

I did not say this when I referred to the definition of "dishonesty" earlier, but, frankly, if we had agreed to the definition of "dishonesty" proposed in the earlier amendments, we would have taken the heart out of the cartel provisions in Part 6 of the Bill. If we take away the investigatory powers provided in the Bill by removing the clauses we are discussing, we effectively take the heart out of the cartel part of the Bill. It is impossible to conceive how we could have an effective regime against hard-core cartels of the kind which are targeted in this part of the Bill unless we have the parts of the Bill which would be removed by these amendments.

My understanding has always been that both opposition parties supported the criminalisation of cartels. However, that is not shown in the amendments we are discussing. If the House were to accept them, we would lose this important part of the Bill and this important protection for the consumers of this country.

Photo of Lord Kingsland Lord Kingsland Conservative 6:45 pm, 28th October 2002

My Lords, I am most grateful to the Minister for his detailed reply. I have heard large parts of it before but that is not his fault. He has had to listen to large parts of my submissions on this subject as well.

If it were the intention of the Opposition to achieve the effect with respect to investigative powers that the Minister suggests, I would wholly agree with his conclusions about our inconsistency. But the Minister knows very well that that is not the purpose of these amendments. The purpose of these amendments is to make it absolutely clear that where criminal prosecutors are concerned, it is the SFO that is the responsible body and not the OFT.

The reason for that is as follows: to seek to give coterminous responsibilities, or to blend the two in some way or other, would give, in the case of a criminal prosecution, an unfair advantage to the prosecutor, and place the potential defendant at a serious disadvantage. These difficulties could be overcome in the ways that the Opposition have suggested in the course of the Committee and Report stages of this Bill. The Minister has to see our amendments in that context. They are certainly not wrecking amendments. Of course, we accept that the SFO would have to have full investigative powers in circumstances where it proposed to undertake a criminal prosecution.

However, the Minister is sticking by his guns. I am not, on balance, inclined to take the opinion of the House. Therefore, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 36 and 37 not moved.]

Clause 190 [Extradition]:

[Amendment No. 38 not moved.]

Clause 191 [Investigation of offences under section 187]:

[Amendment No. 39 not moved.]

Clause 192 [Powers when conducting an investigation]:

[Amendment No. 40 not moved.]

Clause 194 [Exercise of powers by authorised person]:

[Amendment No. 41 not moved.]

Clause 198 [Surveillance powers]:

[Amendments Nos. 42 and 43 not moved.]

Clause 203 [Disqualification]:

[Amendment No. 44 not moved.]

Clause 208 [Reform of Community competition law]:

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. 45:

Page 158, line 3, leave out "or transitional" and insert ", transitory, transitional or saving"

On Question, amendment agreed to.

Clause 242 [Overseas disclosures]:

[Amendment No. 46 not moved.]

Clause 252 [Liquidator's powers]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 47:

Page 187, line 6, at end insert—

"3B. Power to bring or defend any action or other legal proceedings in the name and on behalf of the company"

:TITLE3:(2) Paragraph 4 in Part I of Schedule 4 to the Insolvency Act 1986 (c. 45) shall cease to have effect."

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I apologise to the Minister for returning to this matter. On Report he will have heard me say that I would not return to it; but on reading Hansard I noted that the Minister drew my attention to the Lewis case. As soon as I reflected on the point, I realised that there had been some misunderstanding between the noble Lord and myself about the basis upon which the amendment was tabled on Report. Therefore, I return to it now.

On Report, I proposed an amendment that would have had the effect that a liquidator would need the sanction of the court, or the liquidation committee, to take legal proceedings under Sections 213, 214, 238, 239 or 423 of the Insolvency Act 1986 in a compulsory liquidation; but that there would be no such need in a creditors' voluntary liquidation.

The reason behind that amendment was that Schedule 4 to the Insolvency Act 1986 presently provides that a liquidator has power to bring or to defend any action or other legal proceedings in the name of, and on behalf of, a company and must seek the sanction for doing so in a compulsory liquidation, but not in a voluntary liquidation. My view was that proceedings under Sections 213, 214, 238, 239 or 423 of the Insolvency Act should be treated in exactly the same way.

The clause, as presently drafted, makes the distinction between proceedings in the name of, and on behalf of, the company, on the one hand, and proceedings under Sections 213, 214, 238, 239 or 423, in the name of the liquidator, on the other. The former do not require any sanction in a voluntary liquidation; but the latter would require sanction in a voluntary liquidation. I can see no rationale whatever for the distinction. Therefore, I have tabled an amendment putting all such proceedings on an equal footing.

The noble Lord, Lord McIntosh, attempted to answer my amendment but, through no fault of his own, and doubtless because of the inept way in which I put the point, he missed the point. He thought that my amendment was connected with the Lewis case, otherwise known as Floor Fourteen. Although that case has some relevance to this clause and to my amendment, it is more concerned with the costs and expenses of proceedings under the various sections rather than the actual power to proceed. However, in answering me on Report, the Minister said:

"We would not want any" funds for unsecured creditors,

"to be used by the liquidator in pursuing legal action unless the creditors approve. After all, it is a commercial decision for the creditors to choose between, say, a five pence in the pound dividend payable now, or whether to allow the liquidator to pursue a claim which may result in a 50 pence in the pound dividend at a later stage".—[Official Report, 21/10/02; col. 1131.]

I have thought carefully about what the noble Lord said. His arguments are compelling not just as regards proceedings under Sections 213, 214, 238, 239 or 423, but also about proceedings in the name of the company. The same point applies to both kinds of proceedings. Funds should not be used by the liquidator in pursuing legal action, be it under the relevant sections or in the name of the company, unless the creditors approve. That is a commercial decision for the creditors in both cases.

Therefore, on this occasion, I have tabled a different amendment. This shows the value of debate. The effect of my amendment is to put proceedings in the name of the company on exactly the same footing as proceedings under these various sections. In all such proceedings, the liquidator will need the sanction of the court or of the liquidation committee in a compulsory liquidation; and the sanction of the court, the liquidation committee or the company's creditors in a voluntary liquidation. I beg to move.

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 no objection to the noble Lord, Lord Kingsland, tabling an amendment when he said he would not. That is his privilege. Unless I misunderstand him totally, I am puzzled to find him tabling an amendment that is the exact reversal of that tabled on Report. I want to ensure that I understand him correctly.

The present position is that liquidators in compulsory liquidations need the sanction of court or creditors prior to defending or bringing actions in the name of or on behalf of the company. The previous amendments were tabled to amend this section and to make all antecedent recoveries pursuable by voluntary liquidator without sanction as is the situation with bringing and defending all other legal actions at present.

This amendment would mean that liquidators in voluntary liquidation must also obtain sanction for such actions. We have provided that for antecedent recovery action in respect of fraudulent or wrongful trading, preferences, transactions at under value and transactions defrauding creditors, and those actions are not in the name of or on behalf of the company, in all liquidations sanction will be required.

We have heard no evidence from insolvency practitioners or creditors or other interested parties that they feel that there is a problem with not having to have sanction to bring or to defend legal proceedings in the name of the company. As things stand in the Bill a voluntary liquidator will have to have sanction to pursue proceedings where they are seeking to restore the company to the position it would be in if some kind of wrongdoing had not taken place, but not to bring or to defend other legal action. Other legal proceedings are not analogous to the legal actions that the Bill proposes should require sanction.

The reason that sanction should be sought by a voluntary liquidator regarding an antecedent recovery action—for example, seeking to impugn a prior transaction as a transaction at an undervalue—is that this is an action that seeks to restore the company back to the position it should be in, and this is a decision which may use up available funds. The creditors should have the power to decide whether they wish to pursue the action in the hope of receiving a larger dividend than they would receive if no remedy was sought.

I caught a glimmer of that in what otherwise was to me a rather confusing speech. I am sure that when I read it the pure, pristine logic will become apparent. I do not believe that this change is any more desirable than that proposed on Report.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I am grateful to the Minister for responding so sportingly to an amendment that has first appeared at Third Reading. It would be churlish of me, having given the Minister an initial glance, to press the matter to a vote. This may be a matter to return to in the course of fresh legislation somewhere down the road. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 255 [Duration of bankruptcy]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative 7:00 pm, 28th October 2002

moved Amendment No. 48:

Page 188, leave out lines 16 to 19.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, unless any noble Lord has an objection, in moving Amendment No. 48, I shall speak also to Amendments Nos. 49, 50, 51, 52 and 53. The amendments relate to the significant worries which have been raised by these Benches about the bankruptcy provisions.

A similar amendment to Amendment No. 48 was tabled in Committee and was the subject of extensive debate on Report. It is disappointing that the Government have not listened to the widespread and real worries raised in connection with the current provision in the Bill which would effectively allow a bankrupt to be discharged within months or, as I understand an official in the noble Lord's department estimated, eight weeks of his bankruptcy.

On Report, we had an extensive debate over the compelling research published by the Centre for Economic and Business Research which predicted that there could be an increase in the number of bankruptcies of over 50 per cent as a result of the proposed changes in legislation. The Minister was not sympathetic to that view. One of the Government's main arguments in favour of a much reduced bankruptcy period is that it would be countered by the introduction of a tougher regime of bankruptcy restriction orders designed to apply to those whose conduct has been irresponsible, reckless or otherwise culpable. However, it appears that the criteria listed as grounds for making such restriction orders set out in Schedule 20 are aimed almost exclusively at business bankrupts. It is difficult to understand how they could apply to consumers. It is clear that in the Government's attempt, which we support, to encourage a more entrepreneurial business culture, they have given virtually no consideration to how those reforms will impact on consumers and will be perceived, in particular by those consumers who abuse the system.

There is a clear risk that many, in particular those with little to lose from bankruptcy, will see the possibility of getting out of bankruptcy in a matter of months or weeks as an easy option. That will surely appeal to many consumers struggling with credit card debts. There is still a question mark over student loans. The position has not been properly clarified. Many of those consumers have few assets and would find it relatively painless and appealing to give up the struggle to repay debt and be free to start again within a few weeks. Those actions will come at a huge cost to both the borrowing and lending communities.

The Minister's response was to ask: if we believe that, why are we not coming forward with stronger amendments? On reflection, perhaps we should have gone further. But that is not an argument for rejecting this group of amendments. They preserve the spirit and aims of the Bill but seek to limit abuse and the negative effects that will surely follow if the Government do not move.

In Amendment No. 53, as a last resort we have now said to the Government "If you believe so much in what you set out in the legislation, then you should at least have a proper investigation". One of the criticisms put forward by the Minister of the compelling research published by the Centre for Economic and Business Research—I understand that the Minister's officials have had further discussions over that research—was that they were not persuaded by it. But the Government have not had independent research of their own. They are proceeding with this important legislation when there has been little consultation over the effect of this part of the Bill and little research—none by the Government—into its effects.

New Section 289 is contradictory. It imposes on the Official Receiver a duty to carry out an investigation of the bankrupt's affairs. However, in subsection (2) it permits the Official Receiver to decide for himself that it is not necessary to comply with that duty.

Instead of firing slings and arrows of outrageous insults across the Chamber, perhaps the answer is for the Minister to say, "Yes, support us on this because we believe that we are right. But we shall have a full and independent investigation"—as is proposed in Amendment No. 53—"a rolling study of the effects of the personal insolvency aspects of the legislation following the third anniversary of this Act coming into force". That is surely a reasonable approach. I hope that the Minister will respond positively. I beg to move.

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

My Lords, I support the amendment and Amendment No. 53. At Second Reading, I said that I was amazed by the contents and philosophy underlying this mammoth Bill. I conjectured that had it been brought forward in the latter days of the former Conservative administration, those Benches which are now the Government Benches would have been in uproar.

The noble Lord, Lord Hunt, properly and fairly describes some of the defects of the bankruptcy provisions. Perhaps I may briefly allude to my 26-year stint as the "legal eagle" on the Jimmy Young Show. Nothing so enrages the so-called ordinary citizen as some of the effects of bankruptcies and liquidations. The circumstances often cause a local scandal. I would not have reduced the discharge period to a year.

Amendment No. 48 seeks to exclude subsection (2) of new Section 279. That could work in a bizarre way. The Official Receiver can file with the court a notice saying that his investigation is unnecessary or has been concluded. In that event, the bankrupt is discharged when the notice is served. That seems an extraordinarily advantageous arrangement. How quickly the investigation is dealt with will depend on how many clerks serve in the Official Receiver's office. How quickly or slowly the bureaucrats move on the matter seems an inadequate basis on which to determine the period during which a person is bankrupt. It gives an advantage to bankrupts whose affairs are simple. There may be a single creditor. For example, Nick Leeson has a single creditor for £670 million called Barings Bank. Mr Young had a single creditor for about £700 million: Morgan Grenfell. The conduct of his affairs could be dealt with quickly, perhaps within a fortnight, with a notice saying, "Over and done with", and he is free. It is a hopelessly inadequate method of dealing with a section of our law which has an element of public disapprobation attached to it.

When fundamentally changing such a basic aspect of business and personal life, at the very least it must make good sense to set up a commission, as anticipated in Amendment No. 53. I hope that the Government believe that there is good sense in doing so. It will be an opportunity for us all to take stock of the changes in a more informed way. I hope that the Government will accept that proposal and the other amendments in the group.

Finally, the Bill's changes in law as a whole are designed to make our entrepreneurial culture even more entrepreneurial. I begin to wonder whether Mr Meacher—and, I understand, Mr Bercow—in the other place may be more in tune with public concern about not the lack of entrepreneurialism but the decline in probity, trust, honesty and public confidence in our life. All of the amendments would tilt the scales back a little in that direction.

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 shall attempt to deal with this rather disparate group of amendments. I do not object to them being grouped together; do not get me wrong.

Amendment No. 48 seeks to remove the provision that will allow bankrupts to be discharged within one year after the date of bankruptcy where the official receiver has concluded that further investigation of the conduct and affairs of the bankrupt is unnecessary. We have heard suggestions from the Opposition—we heard them again today—and representatives from the credit industry that the early discharge provisions will lead to an increase in the number of bankruptcies. That was referred to—not at length—by the noble Lord, Lord Hunt, when he moved the amendment. He mentioned the CEBR research. I shall say a little about that later.

Other countries that have reduced their discharge periods are often cited as examples of what will happen. We took those accusations very seriously because if it had been true—if the Opposition had been convinced that there would be anything like a 50 per cent increase in the number of bankruptcies as a result of the provisions of the Bill—the Opposition would have wished, I should have thought, to oppose very many more of the provisions on bankruptcy than they have done. The same is also true of us. If we thought for a split second that there would be anything like a 50 per cent increase in bankruptcies as a result of the Bill, we should not have put forward this legislation. That is not an intended, expected or even possible result; it is certainly not likely. When the matter was raised for the first time—on Report last week—we took it very seriously. We had further meetings with representatives of lending organisations, including the Maryland Bank of North America, which commissioned the research that has been quoted. We have not in any way neglected the arguments that were advanced.

Some people said during the passage of the Bill and in the press—the Financial Times has reported this view on a number of occasions in the past few days—that the Government's desire to reduce the stigma of bankruptcy will be seen as making bankruptcy a soft option or a rogues' charter. I am not sure who used that phrase; was it the noble Lord, Lord Hunt? I have no hesitation in repeating the Government's position, which we have put most strenuously here and in the other place. Even after the Bill is implemented bankruptcy will not be a soft option. We want to reduce the stigma of bankruptcy for those who have failed through no fault of their own, but in so doing we would not want to relieve them of the consequences of bankruptcy. Bankruptcy and its consequences are the option of last resort for almost everybody and they should remain so.

Let me repeat the consequences on somebody who becomes bankrupt: I refer to both business and consumer bankrupts. They lose their assets. Any assets that the bankrupt has at the date of the bankruptcy order will vest in the trustee, whether or not they are disclosed to the trustee. They remain vested in the trustee even after discharge. They lose a large part of their surplus future income. The official receiver or trustee will ensure that where bankrupts have surplus income beyond that which is needed to meet their and their families' reasonable domestic needs, they will be expected to make contributions towards their debts for three years, notwithstanding discharge. That is why I resist the emphasis that has been placed, today and last week, on the period of discharge. Discharge is not the only consideration.

The Bill will introduce income payments agreements as an out-of-court route to secure such payments where the bankrupt consents. If the bankrupt does not consent, an income payments order can be sought. Their credit records are severely affected. Details of the bankruptcy will continue to be advertised in newspapers and the London Gazette. Details of the bankruptcy order, and any subsequent bankruptcy restrictions order, will be recorded on the publicly available individual insolvency register and will also be reflected on the bankrupt's credit record. That will severely affect their ability to obtain credit in the future. When one thinks of how difficult it is for someone who has had a Crown Court judgment against them to obtain credit, imagine how much more difficult it will be for anyone who has been bankrupt, even if the discharge is of a year or less than a year.

Photo of Lord Phillips of Sudbury Lord Phillips of Sudbury Liberal Democrat 7:15 pm, 28th October 2002

My Lords, does the Minister accept that the difference between the theory, which he has perfectly correctly read out, and the practice on the ground, in terms of disabilities and so on, is very wide indeed?

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)

No, my Lords, I do not accept that. I had not finished my response.

Bankrupts risk losing their home. If a bankrupt owns or jointly owns an interest in a property, that interest falls within the bankruptcy estate and the trustee will seek to realise any equity. That can be done up to three years after the bankruptcy, irrespective of discharge. The bankruptcy will also make it very difficult to obtain a mortgage in the future. They could lose their job. The very fact that they are made bankrupt could lead to their dismissal; for example, being bankrupt can lead to one's being excluded from this House.

I do not accept what the noble Lord, Lord Phillips, said about the differences between the theory and what is on the ground. He did not present relevant arguments; but we cannot have that debate across the Chamber now. However, if I accept, for the sake of argument, what he said, that still has nothing to do with the period before discharge. That is the position.

I have been describing the position under current law, and it will not change. We are also retaining the current low exemption levels for assets and ensuring that in a bankruptcy or an individual voluntary arrangement, all of a debtor's assets can be taken into account, including future income. In fact, by introducing income payments agreements, we are providing an out-of-court route that will be quicker and more easily varied than the current system. An individual can enter into an individual voluntary arrangement only with the agreement of the creditors.

We are strengthening the bankruptcy regime to deal with the irresponsible or reckless by introducing the bankruptcy restrictions order regime. I say to the noble Lord, Lord Hunt, that the grounds listed in Schedule 20 for a bankruptcy restriction order, which he says are geared towards business, are not exhaustive; they mean that the courts can consider any misconduct. There are also grounds that could be used by consumers. Subparagraphs (h), (i), (j) and (m) could equally apply to consumers.

If the culpable are under any illusions that they will be able to use bankruptcy as a way to get in, get rid of their debts, and get out, they are mistaken. As I said, bankruptcy restrictions orders will impact on consumer and business bankrupts. The bankruptcy restrictions order regime will mean that instead of experiencing the effects of bankruptcy for three years, as is now the case, they could potentially experience most of those effects for up to 15 years. Those effects will include being unable to incur credit over the prescribed amount—it is currently £250—without disclosing their status and being unable to act as a director of a limited company. The fact of their bankruptcy restrictions order will be recorded on a freely available public register. That will no doubt be reflected on their credit record. Under those circumstances, can anyone seriously believe that bankruptcy is a soft option and that there will be a significant increase in the number of bankruptcies as a result of the changes?

The noble Lord, Lord Hunt, referred to the CEBR research. I do not want to give a full response but I stress that we took that criticism very seriously. Last week, we commissioned independent research into the significant part; that is, section 6 of the CEBR research. We commissioned it from Professor John Van Reenen of the department of economics at University College, London. The professor concluded that,

"the econometric work contained in Section 6 is so seriously flawed that it should not in any way be relied upon to judge the impact of the Enterprise Bill on personal bankruptcies".

I could continue on that theme, but I shall not do so because I believe the point has now been fairly made.

We have heard about the potential cost to the credit industry. We have listened most carefully to what has been said and have considered the wide range of factors that impact on a debtor's decision to enter bankruptcy. In particular, we have listened to the concerns expressed over early discharge. We have taken account of the views expressed both during the consultation and the parliamentary process. We have made changes to the proposed discharge period from the original six months to 12 months. We were only too willing to accept sensible suggestions to improve the bankruptcy proceedings provisions. We did so by way of government amendments.

I repeat: we do not expect all bankrupts to be discharged before the automatic 12-month period. It will happen only in those cases where the bankrupt was not at fault, where he has co-operated with the Official Receiver, where he poses no risk to the public or commercial community, and where all the investigative and administrative matters have been completed. Further, creditors will have the opportunity to object to such early discharge; indeed, we are committed to talking to interested parties on the draft rules. All this serves to convince us that the measures we propose to reduce the discharge period are more than balanced by our proposals for dealing with culpable bankrupts and for ensuring that those who can pay, do pay.

I am sorry that I have taken so long with my response, but clearly we are discussing one of the most important matters associated with this Bill. I turn, finally, to Amendment No. 53. I wish to comment on the way in which we propose to evaluate, monitor, and report on our proceedings. I have sympathy with the concept that new legislation should be monitored and evaluated. In fact, for many years I earned my living by doing just that for government. The Government have a manifesto commitment to more systematic reviews of major pieces of legislation. We are currently considering how best to achieve that aim.

As part of that process, we are committed to reviewing the Enterprise Bill not after three years, as Amendment No. 53 suggests, but within three years of implementation. In paragraph 11.2 of the regulatory impact assessment, we made it clear that the effectiveness of the new legislation will be monitored after it has been in force for a period of three years. I improved on that a short time ago by saying that that would be "within" three years of the Bill's implementation.

Therefore, without any hesitation, I can give the House a commitment that the substance of Amendment No. 53 can and will be implemented without any need for the matter to be on the face of the Bill. Indeed, it could not be on the face of the Bill in the form set out in Amendment No. 53. I am not at all sure that a "rolling study" is the correct definition of what needs to be done. Similarly, I am not at all sure that the matters set out in paragraphs (a) to (c)—with an "and" in between them—are the only considerations that apply. I do not know whether much of the amendment's wording would be appropriate. However, I am sure that we can carry out a review within a period that is no worse than the time-scale proposed in the amendment. That review will cover the points that I know the noble Lord, Lord Hunt, seeks to cover in Amendment No. 53. With that assurance, I hope that none of these amendments will be pursued.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I take note of the Minister's response to these amendments, especially the commitment that he would like to make about the commissioning of further research. There is widespread concern, which I recognise the noble Lord does not share, about the effects of these provisions—the lack of independent research, and the lack of any real consideration of the effect on consumer bankruptcies.

I note that the Minister has some contextual concerns about the amendment, but it is perfectly possible for him to seek to amend the proposed new clause in the other place should be choose to press his concern about the wording. However, such is the level of concern that I feel I must press Amendment No. 53. In the meantime, I beg leave to withdraw Amendment No. 48.

Amendment, by leave, withdrawn.

[Amendments Nos. 49 to 51 not moved.]

Clause 257 [Investigation by official receiver]:

[Amendment No. 52 not moved.]

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 53:

After Clause 271, insert the following new clause—

"COMMISSION OF BODY TO STUDY THE EFFECTS OF ACT

(1) The Secretary of State shall commission a reputable and appropriate qualified body to carry out a rolling study of the effects of the personal insolvency aspects of this Act in sections 255 to 271 and Schedules 19 to 23 on—

(a) numbers of personal bankrupts;

(b) cost to unsecured lenders; and

(c) effect on lending rates and on access to credit.

(2) Following the third anniversary of this Act coming into force, and annually thereafter, the Secretary of State shall arrange for an annual report of the findings of the study commissioned in accordance with subsection (1) to be laid before Parliament."

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I beg to move.

On Question, Whether the said amendment (No. 53) shall be agreed to?

Their Lordships divided: Contents, 61; Not-Contents, 103.

Division number 4 Private Parking: Ports and Trading Estates — Enterprise Bill

Aye: 59 Members of the House of Lords

No: 101 Members of the House of Lords

Ayes: A-Z by last name

Tellers

Nos: A-Z by last name

Tellers

Resolved in the negative, and amendment disagreed to accordingly.

Schedule 4 [Tribunal: procedure]:

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) 7:35 pm, 28th October 2002

moved Amendments Nos. 54 to 56:

Page 211, line 30, leave out from second "the" to end of line and insert "direction may be enforced as if it"

Page 214, line 3, at end insert "or

"(ii) such recovery or inspection of documents as might be ordered by a sheriff;"

Page 214, line 20, leave out from "than" to "of" in line 21 and insert "proceedings under section 47A or 47B"

On Question, amendments agreed to.

Schedule 5 [Proceedings under Part 1 of the 1998 Act]:

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. 58:

Page 220, line 31, at end insert—

"(2) This paragraph is without prejudice to the power of the Secretary of State to provide in regulations made under paragraph 1 above for extensions of the four month period; and, if any such provision is made in such regulations, the provision which is to be made in regulations under paragraph 1 above by virtue of sub-paragraph (1) above or paragraph 6 below may be adjusted accordingly."

On Question, amendment agreed to.

Schedule 16 [Schedule B1 to Insolvency Act 1986]:

[Amendments Nos. 59 and 60 not moved.]

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 61:

Page 286, line 22, leave out "harm" and insert "prejudice"

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, we return to the argument about "harm" or "prejudice". In relation to these specific amendments, on Report the Minister, the noble Lord, Lord McIntosh of Haringey, suggested that there was no real distinction between the terms "harm" and "prejudice" and that he preferred the word "harm" as part of his solo drive to simplify legal language.

I can only reiterate that use of the term "harm" instead of "prejudice" will cause confusion and difficulty for both practitioners and courts. If they try to interpret how to apply the word "harm" in this new context, there will be no case law whatever to guide them. Will the Minister accept that I strongly support his drive for simplified language but that, in this case, the use of the word "prejudice" is far from complicated or archaic?

I understand that the noble Lord's officials are reviewing this issue with the assistance of parliamentary counsel. Therefore, I hope that he will accept this relatively simple amendment and at least give it proper consideration. I beg to move.

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 know who told the noble Lord, Lord Hunt, that we are reviewing the matter with parliamentary counsel. Such matters are usually treated with the utmost confidentiality. But now that he has blown the gaff, so to speak, I can tell him that we have reviewed the matter with parliamentary counsel, who do not want us to change the word "harm".

This is not a solo campaign to update legal language; it is a campaign led by my noble and learned friend the Lord Chancellor. I wish that he had stayed for a few minutes to support me but, in the circumstances, I shall have to do it by myself.

Of course, there are circumstances in which one has to use special words for legal purposes. But the word "prejudice" has two totally different meanings. It has one meaning in common language, such as in the term "racial prejudice" or other forms of prejudice of that kind, and it has a totally different legal meaning, as in "without prejudice". For this purpose, "harm" means the same as "prejudice".

I said it before; I say it again; and I say it in full knowledge of the consequences of the judgment in Pepper v Hart. I have been advised, and I see no reason to doubt, that there is no distinction between "harm" and "prejudice". But until we start to use this and other more up-to-date words and phrases, there will be no opportunity for case law to attach and develop. "Harm" is a commonly used word which is far more likely to be understood not only by the courts and practitioners, for whom the noble Lord, Lord Hunt, is concerned, but by the professional advisers and, above all, by the public. I resist the amendment.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I must rise to defend the noble and learned Lord the Lord Chancellor from the strictures of the government Deputy Chief Whip, who criticised the fact that he did not stay or dally for a few moments. I know that the noble and learned Lord will have extensive further duties to perform and I believe that the noble Lord was being very unfair. Otherwise, I accept his guidance. I am very grateful for his response and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 62 to 68 not moved.]

Schedule 18 [Schedule 2A to Insolvency Act 1986]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 69:

Page 316, line 36, leave out paragraph (a) and insert—

"(a) it involves the grant of a security interest by a party to the arrangement to another party to the arrangement (whether as principal, agent or trustee), or"

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, Amendment No. 70 was debated in Committee and on Report, and Amendments Nos. 69 and 71 are in the alternative and designed to achieve a similar aim. On Report, I had the opportunity to emphasise the great significance of this amendment for the structured finance market in the United Kingdom. The non-political, technical and, I would contend, sensible nature of the amendments makes it very difficult to understand why the Government should be so opposed to them. However, the Minister suggested on Report that if a further meeting was necessary to discuss this or similar amendments with city lawyers, one could be held.

I understand that last week such a meeting was held between members of the City of London Law Society and officials within the Department of Trade and Industry to discuss the scope and reasoning behind these amendments. I understand that the meeting was very helpful to all sides, with the result that progress appears to have been made. I hope that the Government can give some reassurance in response to these amendments. I beg to move.

Photo of Baroness Turner of Camden Baroness Turner of Camden Labour

My Lords, I must tell your Lordships that if Amendment No. 69 is carried, I cannot call Amendment No. 70 by reason of pre-emption.

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 the noble Lord, Lord Hunt, for tabling these amendments so that I have an opportunity to explain the Government's intentions. I am also grateful to the City of London Law Society for being able to meet, at short notice, with officials to discuss the matter, as the noble Lord said.

On further clarification from the City of London Law Society it is clear that its concern lies in the fact that while paragraph 1(1)(a) currently provides an exemption for traditional capital market structures, there are in fact transactions at large in the market which utilise other structures, which will not be exempt.

We should like the opportunity to reflect further on the issues raised and to take soundings from other interested parties—for example, investment bankers—who have so far remained silent. We shall need to consider whether a broader definition of a capital market arrangement would open up the possibility of "normal corporate lending" being able to mould itself into a capital market arrangement. Also we need to consider the impact of such an amendment on other legislation; specifically, the new moratorium company voluntary arrangement procedure introduced by Section 1 of the Insolvency Act 2000, which includes the same wording for this provision.

We believe that further consideration is needed on this matter and that it would not be appropriate to rush through this amendment at this late stage. We have the power in Clause 249 to make an amendment if it is deemed appropriate following the further consideration I have outlined. I hope that on that basis the noble Lord, Lord Hunt, will be able to withdraw his amendment.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I am grateful to the Minister for that positive response and reassurance. I readily join him in thanking those who have done so much hard work in such a short time on this important issue. I accept his assurances.

I am grateful to the noble Lord, Lord McIntosh of Haringey, and his colleagues for having sought with these Benches to try and improve the wording of the Bill. Naturally we are hopeful that the amendments made in this place will not be challenged in another place. These may be my final words on the Enterprise Bill; therefore I want to thank the noble Lord. In view of the comments he has made, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 70 and 71 not moved.]

Schedule 20 [Schedule 4A to Insolvency Act 1986]:

[Amendments Nos. 72 and 73 not moved.]

Schedule 24 [Transitional and transitory provisions and savings]: