HL Deb 27 July 1955 vol 193 cc1079-94

2.52 p.m.

THE LORD CHANCELLOR (VISCOUNT KILMUIR) rose to move to resolve, That this House welcomes the Report of the Monopolies Commission on Collective Discrimination as a basis upon which Her Majesty's Government can formulate its proposals. The noble and learned Viscount said, My Lords, in rising to move the Motion that stands in my name with regard to the Report of the Monopolies and Restrictive Practices Commission, I am sure that the first thing we should do is to express the gratitude of every one of your Lordships for a careful and thought-provoking document. Again, I think your Lordships will agree that this is a complex and difficult subject, and therefore, to my mind, it is an advantage that there is a Majority Report and also a Minority Report, because this fact highlights the points on which each one of us has to make up his mind. For Her Majesty's Government, the Report is not only a basis for thought but a basis of action which I shall try to put before the House.

It is important that noble Lords should have clearly in mind what the Report is about and what is excluded from its purview. With all deference to the noble Lord the Leader of the Liberal Party, the Report is not about any and every aspect of monopoly and restraint of competition; it is about a particular group of practices which differ in detail from each other but have a strong family likeness. They all involve collective agreements between traders requiring the -parties to discriminate in their dealings with other traders. For example, a group of suppliers agrees to give favourable terms to certain customers; a group of customers agrees to give favourable terms to certain suppliers; or a group of suppliers and a group of customers agree to give favourable terms to each other. Hence the convenient short title which the Commission have adopted for their Report—Collective Discrimination. It is important to note what the Report does not cover. It does not cover price rings because there is no discrimination here, the price being the same to all customers. It does not cover sole agency agreements and it does not cover resale price maintenance as such—that is, the question whether it is, in general, in the public interest that suppliers should prescribe and enforce resale prices for their goods. This was separately reported on in 1949 by the Lloyd Jacob Committee.

The Commission found it possible (as those noble Lords who have the Report in front of them will see at paragraph 29) to identify six broad categories of agreements, each of which may operate separately or in association with others. I hope noble Lords will think it convenient if I state them so that they may be kept in mind. The first is collective discrimination by sellers without any corresponding obligation on the buyers. The second is collective discrimination by sellers in return for exclusive buying. The third is collective adoption by sellers of a policy of imposing resale price or other trading conditions on buyers. The fourth is collective enforcement by sellers of resale price or other trading conditions. I pause here for a moment because I feel it is important that noble Lords should have in mind the clear distinction between the third and fourth categories. In relation to the fourth category, the parties are free to choose whether they will fix resale price conditions for all or any of their goods; but they agree that they will collectively enforce the conditions which any of them chooses to lay down. I shall try to indicate to your Lordships why I feel a distinction should be drawn between these two categories of practice. The fifth category is collective discrimination by buyers without any corresponding obligation on the sellers. The sixth category covers aggregated rebates.

In dealing with these categories it would be useful if I indicated, as briefly as possible, the proposals that have been put forward, first by the majority of the Commission and, secondly, by the minority, compared them and then indicated why Her Majesty's Government have taken the line which they have chosen. The majority of the group of ten members of the Commission who considered this problem—a majority consisting of seven members, including the Chairman—point out that, because these practices involve collective obligations which in some way limit the freedom of the parties in the conduct of their business, all the arrangements within the reference in some degree restrict competition. I will quote the exact words in paragraph 233 of the Report. The majority: do not say that in every individual case this restriction is necessarily against the public interest but are nevertheless satisfied that all the types of agreements which we have examined do adversely affect the public interest, sonic to a considerably greater degree than others. Now it is worth looking at the matters that have influenced the majority in coming to that conclusion. They have been influenced, as they say in paragraph 234, by the fear that traders are prevented from experimenting and trying out new and different ways of business, and by the fear of undue rigidity, with its consequences. May I for a moment relate these fears of the majority of the Commission to the categories of practices which I mentioned to your Lordships? The majority say that the collective selection of favoured traders—that is categories I, II and V— can easily lead to the creation of a privileged group, subject to relatively little outside competition. Then they say, in paragraph 236, that agreements on resale price policy—that is category III— prevent experiment and protect established traders from the competition of those who would otherwise be willing to introduce new techniques, and thus create a rigidity in trading practices which is contrary to the public interest.… The final verdict … should be left to the market, where the consumer can exert his influence and should not be reached by collective decision of traders which prevents hint from doing so.

With regard to category IV—and I invite your Lordships' attention to this because I think this is a most important point in the discussion—they say that agreements on collective enforcement: leave little freedom to manufacturers or distributors in choosing the trading methods and the price policies they will adopt, or to consumers in exercising a choice between better service at a higher price and a lower price with less service. The majority express no opinion on the merits of resale price maintenance as such, but think that these disadvantages arise—and I quote again: to an important extent from the uniformity and rigidity of its application in many trades. and that these are largely consequences of collective enforcement. Moreover, it is generally against the public interest, they say, for combinations of traders to be able to exercise extensive powers over individuals, and for this to be done: through private tribunals whose procedure cannot provide the safeguards which public justice requires. To complete the story, I refer your Lordships to paragraph 239 where they deal with aggregated rebates. There they say that these: encourage the spreading of orders in ways which may not promote the most efficient production, and are likely, where common price systems exist, to render independent competition more difficult. That is the criticism on the one side, and I am sure your Lordships will consider that it is criticism which deserves careful consideration from every one of us interested in the problem. Let me remind your Lordships that the majority go on to say that though they have not—I quote again: come across any instances in which we were clearly satisfied that the practices were beneficial, yet they think that their exceptional use might, subject to suitable safeguards, be justified in certain circumstances. I pause for the moment to point out that this is one of the acute difficulties which every fair-minded person who has tried to study the subject has come upon. In other words, it is impossible to generalise on the question of monopolies and restrictive practices without, as the majority do here, making certain exceptions. And, of course, the field of exceptions must change with the different views which different persons take.

I return to the majority, and I would point out—and I ask your Lordships particularly to note this because it is material in assessing the rightness of Her Majesty's Government's course of action—that the majority bring forward these considerable and important exceptions. The first is where consumers are not able to judge the standard of services which it is in their interests to demand from distributors and the matter cannot conveniently be dealt with by legislation. I cite that to show what I think is an important point—that is, the difficulty in the working of the exception that they make. The second is where an exclusive-buying or exclusive-dealing agreement protects an industry of strategic importance or one (and I ask your Lordships to note this) that is particularly susceptible to damage from imports, and protection by Government action is impracticable. The third is where a common price agreement is found, after inquiry, to operate in the public interest and agreements within the scope of the Commission's inquiry are necessary for its effective operation. The fourth is where the practices are necessary to enable small firms to compete with a very large concern which is, itself, employing restrictive practices. I have given to your Lordships—I have tried to do it as fairly and as objectively as I can—criticisms which the majority advance and exceptions which the majority would make. I sum up their solution by saying that they recommend a general prohibition of the practices, with provision for exceptions on the grounds I have indicated where an independent body think that a case has been made out.

I will now try to deal—again briefly—with the Minority Report. The minority are not prepared to say, on the evidence and information put before the Commission, that the practices are in general injurious to the public interest. They recognise that some may be injurious in certain circumstances, but do not think that industries should be prevented from using them without an opportunity of having their cases examined individually. They say: A general statutory prohibition seems to us to create a degree of inflexibility in the law which might in the future prove undesirable. The minority deal in some detail with the question of resale price maintenance, and they draw a clear distinction between "policy" agreements (that is, Category Ill) and "enforcement" agreements (Category IV). Of the first, they say that agreements and the enforcement of agreements, obliging all the parties to fix resale prices or handle only price-maintained goods, are likely to be against the public interest I draw your Lordships' attention to that—it is in paragraph 262—because it shows where the mental approach of the majority and the minority do come together. But the minority disagree, as does one of the majority, Mr. Gifford, with the view that collective arrangements for the enforcement of resale prices prescribed by individual manufacturers of their own free choice are likely to be against the public interest. That is category IV. I think that is a most important matter for your Lordships to consider.

I venture to remind your Lordships of the points that they made. They say that they see no objection in principle to persons having like interests joining together to secure the enforcement of lawful obligations to which one of them is a party (paragraph 264). In paragraph 265 they make the point that the price cutter deserves no sympathy. He has either broken one of the conditions of sale on which he bought the goods, or knowingly bought them from a wholesaler who has done so. Thirdly, they point out that it is lawful for individual manufacturers to prescribe resale prices and, if that is so, it is illogical to debar them from enforcing maintenance of these prices in the most effective manner consistent with the general law. They also point out that to forbid collective enforcement favours the large manufacturer as against the small one, who cannot withhold supplies of his goods in a competitive market without serious risk of injury to his own trade.

The minority take the view that where trade tribunals exist, the evidence goes to show that considerable trouble is taken to ensure that the procedure is fair and in conformity with the law. In our view, there is more reason to be uneasy where no tribunal exists—but even there we are not satisfied that in any case brought to our attention the decision was wrong on the facts. That is a very different approach, as your Lordships will see. I sum up that approach by stating their views. In the light of all this, the minority's solution is to provide for compulsory registration of all agreements coming within the reference. They say that this will provide a basis for the examination of individual agreements to determine whether or not they operate against the public interest. As I understand it, they say: let us have registration, but, having got registration, let us proceed broadly in the way we are proceeding already.

I want to ask your Lordships to consider for a moment the question of resale price maintenance. Although this was not directly before the Commission, it seems to me to be so closely allied to the matters which they were considering that it really brings us to a point on which we have to make a decision. Although the Commission did not consider this, it was exhaustively examined in 1949 by the Lloyd Jacob Committee. I am sure that many of your Lordships have read the Report of that Committee and I will not go into it in detail. What is important in the Report of the Committee is what they say on price cutting, their summary of witnesses' statements, especially those of women's organisations and the pronouncements of the trade union movement and of individual trade unionists on this vexed subject. Unless one has considered all the pronouncements from these various angles, I think it is difficult to get the question into true perspective. I especially ask your Lordships to note what the trade union movement and prominent trade unionists have said.

In the event, though the Lloyd Jacob Committee recommended a ban on collective enforcement of resale prices and thought that individual manufacturers should not use their power of enforcement so as to impede the development of new methods of distribution, they stated, in paragraph 163 of their Report: We recommend that no action should be taken which would deprive an individual producer of the power to prescribe and enforce resale prices for goods bearing his brand. I ask your Lordships to take with that what the said—this was quoted by my right honourable friend the President of the Board of Trade in another place on July 13 [OFFICIAL REPORT, Commons, Vol. 543 (No. 27), col. 1945]: The individual manufacturer who wishes to prescribe retail prices for his products should retain the right to do so and should in the last resort be able to enforce these prices-by taking price cutters to the courts. I have quoted that statement because it is important that your Lordships should have the whole problem before you. It is interesting that the majority of the Commission say, in paragraph 238, that they appreciate that some manufacturers may at times have good grounds for wishing to be able to check extreme forms of price competition among retailers in the distribution of their branded goods, and that under the existing law the enforcement of conditions of sale in the courts, even where there is privity of contract, may well be difficult and expensive. We appreciate that distributors as well as manufacturers may be concerned at the possibility of marked and persistent loss-leader selling where resale prices are not effectively enforced. However, the majority regard the question of whether there should be any change in the law as outside the scope of their inquiry. They content themselves with recording their view that collective enforcement arrangements of the kind covered by our reference do not provide an answer which is consistent with the public interest.

It seems to me that the majority of the Commission, the Lloyd Jacob Committee and the trade union comments on the Lloyd Jacob Report pose this problem, which again I shall try to state as fairly and as objectively as I can. Here is a practice, resale price maintenance, which no authoritative inquiry has condemned as such, and which manufacturers, distributors and apparently consumers and the trade union movement believe to be in the public interest. That is the one side. But for many goods the only effective way of enforcing resale price maintenance under the existing law is by collective arrangements, which both the majority of the Commission and the Lloyd Jacob Committee condemn. Moreover, the criteria for exemptions proposed by the majority, which I put shortly before your Lordships a few moments ago, though they might let in some cases of collective resale price maintenance where after-sales service or the safety of the consumer are important, do nothing to meet the fear of selective price-cutting in the field of ordinary consumable goods, for which fear the majority recognise that there is a good deal of justification.

This is not in any way a Party matter. It is a real problem to which we have all to try to provide a solution. We have to ask ourselves: how it this dilemma to be resolved? Her Majesty's Government came to the conclusion—and I shall try to justify it—that it is not to be resolved by a simple ban on collective enforcement and nothing more. Either the law must be changed to make individual enforcement easier—a problem which, believe me, my Lords, requires full and careful consideration, which I am quite prepared to give it; or there must be provision for collective enforcement (perhaps under supervision) in approved cases, and not only on the limited grounds recommended by the majority.

I ask your Lordships to consider this point—and I do not think there will be much disagreement from anyone who has had ministerial experience: that legislation on the basis of either the Majority or Minority Reports presents some thorny problems. The answers to some of them cannot be found without a good deal of further thought and discussion; but an attempt to state them may at least give food for thought to those who have ever held the view that there are short and simple answers. The general policy of the Government was announced in the other place on July 13 by my right honourable friend the President of the Board of Trade when he said—again I state it quite shortly, but your Lordships will find the full statement in columns 1945–46 of the OFFICIAL REPORT: We intend to take power by Act of Parliament to require the registration of those restrictive practices which we shall from time to time specify.…. And he went on to say: The tribunal will call upon them"— that is, firms wishing to continue their practices— to come forward and make out their case for employing that particular practice. The Government believe that their policy will obviate the need for creating new criminal offences. I think this is right, because to do so would be quite inconsistent with the ideas embodied by Parliament in the existing monopolies legislation; for example, a breach of any order made under Section 10 of the present Act does not expose the parties to criminal proceedings. I believe there is a good reason for our view. Although the detailed provisions needed would require further consideration, there seems no reason, on the face of things, why any breach of a prohibition should not, like the breach of a Section 10 order under the existing Act, be dealt with by civil proceedings, by an injunction or otherwise, and my right honourable and learned friend the Attorney-General said that that is the method by which the decisions of the tribunal would be enforced.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

Would the noble and learned Viscount give us a little further enlightment? We are anxious to understand the position in regard to the proposals of the Government for registration. A question was interpolated during the speech of the President of the Board of Trade which I do not think was satisfactorily answered. Is it proposed to have a general registration of all those who are found by the Report to come within that scope which in the majority opinion would deserve exemption? Are all these to be registered initially? If so, since there are a great many of them, obviously to deal with them will be a process of years.

THE LORD CHANCELLOR

The noble Viscount may rest assured that I will deal with that point. I think one of the most helpful things I can do is to elaborate the proposals of the Government as to registration and examination, and to deal with the suggestion, which I believe is quite fallacious, that it will take more time than the majority proposals. I assure the noble Viscount that I will deal with these points, and if there is anything about which he is not clear I hope he will interrupt me again. I apologise for taking some little time to deal with this matter, but it is important, and I particularly want to deal with the points the noble Viscount has put.

The first point I was making—and I think it is an important one—is that the majority suggestion would establish new criminal offences; and as I have said, I do not think that the establishment of new criminal offences is a suitable or right method of dealing with this sphere of activity. I would remind your Lordships that many of the practices which are condemned in the Majority Report came into existence at a time when they could be justified on economic grounds, to protect the industries from the difficulties of the slump in the 1920's and the 1930's. It may well be—I concede the point at once—that they have been continued into times when the economic justification no longer applies, but the point I am making at the moment is that there is nothing inherently criminal in this. What is implicit in the proposals of the Government is that if the Tribunal decide that these practices, which are not in themselves criminal, must be abandoned, it is clearly better to deal with them as a civil matter, by injunction, rather than as a criminal offence. I emphasis what my right honourable friend the President of the Board of Trade said: that these are essentially economic and commercial problems, and that questions of ethics arise only incidentally.

Now I come to the point of the noble Viscount, Lord Alexander of Hillsborough, his criticism and suggestion of excessive delay. I said that there are two points which may be made in answer. In so far as the critics favour the Majority Report—as do the Party of the noble Viscount—it is obvious that considerable delay (I believe greater delay) is inevitable if the majority proposals are adopted en bloc, as the Party of the noble Viscount desire. Again let me not put the matter on a Party argument, but on an argument of objective examination of these proposals. If a wide range of practices were to be declared illegal, and provision were to be made for exemptions—and I have indicated to your Lordships the nature of the exemptions and the terms in which they are defined by the majority—especially if the exemptions are to be the kind I have mentioned, it is certain that many industries and trade associations would seek a loophole in order to get out. They might, for example, plead that their goods were peculiarly liable to competition from dumped imports. I ant not going back over history, but many of your Lordships have as clearly in your minds as I have in mine what has happened in similar circumstances. That would be one problem.

Then, since each case would have to be examined on its merits—this is the majority proposal—it might be many years before all cases for exemption could be dealt with; and even if a volume of Case Law were built up on their pro- posals, it would not, I respectfully suggest to your Lordships, have any more effect, and probably not as much effect, as if a body of Case Law were built up on the proposals which Her Majesty's Government advance. On this point I would venture to remind your Lordships of what was said in the Economist on on July 16 in regard to the proposals of the Government, because I think it summarises the point; and in any event I shall be glad to have it answered. The writer in the Economist says: The advance should be carried on faster than the Monopolies Commission envisaged, because under the system proposed in the Commission's Majority Report"— and I stress this point for the noble Viscount's consideration— no general prohibition could have come into effect until all appeals had been heard: under this system"— this is the Government's system— each trade association will have to drop any condemned practice immediately its own case has been heard and rejected. This time advantage—between an individual ban immediately after an unsuccessful appeal is heard, and A general ban that would operate only after all appeals have been heard—could be important, because the Tribunal will presumably call up what look like the worst cases first.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

I should say that that was a weak attempt to answer the much stronger argument made in The Times on July 19, two days before.

THE LORD CHANCELLOR

It is a great thing to have quotation to counter quotation, but for the moment I shall deal with the basis of the, argument, and I hope someone will put forward the Answer, because I cannot see it. If we have to wait until all these exceptions—I am not doing anyone an injustice when I call them wide exceptions—are dealt with on an individual basis, then we shall have a long time to wait. But that is only, in a sense, countering another suggestion. It would be positive on the advantages of the Government's own suggestion. In the first place, it is clear that not all industries would wish to plead their case before the Tribunal. I do not think anyone who has examined the operation of monopoly legislation in other countries would doubt this: I do not mind which countries are chosen, and if the noble Viscount wants one for a special consideration, I refer him to the Swedish results, with which he is probably familiar. Some industries would decide to abandon their restrictive practices, or some of them, just before, or immediately after, registration. There are always some which go at that stage—at least, that has been the experience in other countries. Secondly, if all the practices are not abandoned because of the need to register, many industries will decide to give up the most restrictive features. That is also a fair inference from historical fact.

VISCOUNT ALEXANDER OF HILLS-BOROUGH

I do not like to keep interrupting, but I want to get the case clear. If that is the argument, cannot that be used in exactly the other respect—that if you have a general ban, a large number of the people within the ban will not take steps in the matter. Where does the first argument of the Lord Chancellor come in?

THE LORD CHANCELLOR

Because, as I have tried to point out—I am sorry if I have not made it clear—in the first case you have a general ban with four wide exceptions, and your general ban cannot be put into operation until you have decided whether an individual firm comes within one of these four wide exceptions. That takes a long time, and any individual can say, "I am within this exception even if my neighbour is not." Our proposal—and I repeat it to the noble Viscount—is that there will be registration, and then the firms will be called up to justify their practice. First of all, I say that some will not desire to be called up and will make some alteration or modification.

Now I come to the next point, and I ask the noble Viscount to follow me. After a few cases have been tried in this way, where firms have got to justify themselves, it will become clear that similar practices are likely to be dealt with in a similar way by the Tribunal. Here, it is a question of establishing principles inductively from the cases that are considered. It is not a question of trying to argue that you are within a wide exception. Here your Case Law will have accumulated effect from every class and series of cases that are tried. I put it to the noble Viscount that there is a limit to the number of variants of a particular practice, and the establishment of case law will, when applied in the way we suggest, act as an effective deterrent to unnecessary or frivolous appeals to the Tribunal. I put it another way: that this approach, as opposed to an approach which leaves open to individuals the bringing of themselves in particular within exceptions, is much more likely to have a general deterrent effect, and will be speedier. That is the way in which the Case Law will be built up.

Having heard a few representative cases, the Tribunal, unless the cases showed marked dissimilarities, would announce their decision. The decision will be that either the practices must be discontinued because they are against the public interest, or that they can be continued, or that they can be continued with modification. On our system it would not be necessary to examine all the other firms following the selected examples of the class of restrictive practices, because, in the light of the decision, there would be a general presumption that the selected practice was or was not against the public interest. I ask the noble Viscount to consider it. I do not want to be dogmatic, but if he applies his mind to the general history of people who have sought to bring themselves within exceptions and to establish a special position for their own point, he will agree that the result would be a much longer process. Therefore, the Government think that the procedure they propose would, in practice, deal more quickly with these restrictive practices—particularly the least desirable—than the majority proposals, which could not be enforced without giving traders a chance to prove that their practices came within the exceptions to the general prohibition that I have mentioned.

The noble Viscount asked me another point and I am glad to answer it. He asked: How will the registration be done, and how will the cases be called up to the Tribunal? I would remind the noble Viscount of what my right honourable friend said. He said: We intend to take power by Act of Parliament to require the registration of those restrictive practices which we shall from time to time specify. We shall select the ones we want and in the order we want. … The Tribunal will call upon them"— that is, the firms wishing to operate or to continue to operate a particular agreement— to come forward and make out their case for employing that particular practice. My right honourable friend indicated that the Government would require firms to register their practices with the registering authority, and he also implied that an early indication would be given of what practices would be registered and, following registration, the order in which they would be examined. That is a matter for the legislation. I cannot tie the Government to the foot of the letter at the moment, but I point out that my right honourable friend made that clear.

I have used the phrase "the worst cases," and I would remind your Lordships that I drew the attention of the House to the fact that the Majority and the Minority Reports agreed on practices in category III as being the most subject to criticism on the grounds that they might he against the public interest; and indications could be given in the legislation that the onus to be discharged in getting category III agreements through would be a very heavy one indeed. As my right honourable friend said, It might be right … that the agreements in this category should be the first to be registered and certainly among the first to be examined. Respectfully, I am quite ready to listen, but I do not think it is a good thing to make your lists of registrations final and conclusive. There may well be other practices that you want to include and you want registered. I would deprecate the suggestion of the noble Viscount that one should have a closed list. I think you ought to have a selection made on the basis of all the information, not only the Commission's Report but the cases that they have examined and other matters that may arise, and take power to register in that way.

On the second point with regard to the calling up, again I think that it is easy, from examining both Reports, from examining the other Reports that we have had from the Commission and the various Reports that have appeared on this matter of the call-up, to take these cases which are most clearly contrary to the public interest and let the person answer them first. That is the Government's proposal. I say, as I pointed out and as one must not forget, that there is a large measure of agreement between the Majority and the Minority Reports, and among the public on the ultimate objectives: to prohibit those restrictive practices and collective discriminations and others which are contrary to the public interest. The Government have tried to synthesise the different means which ate majority and the minority suggested of reaching this objective, and have suggested a procedure which will, in practice, be the fairest and surest, and in the end the quickest, way of dealing with a very complex social and commercial problem.

I make this point. Registration will, in itself, have a powerful effect. A method can be found—and I have endeavoured to indicate the criterion—of dealing with priority of practices, both for registration and for calling up. Again, I emphasise my point to the noble Viscount that those practices dealt with by the Tribunal and of which the Tribunal disapprove will then stop. There wilt not be the period of delay which the majority suggestions involve. If the practices are not stopped, they can be dealt with by civil process. It is better to deal with them by civil process than to create new crimes. Further, I put this general point to your Lordships. I believe that every country should evolve its own method of dealing with these difficulties that we all recognise. I believe that the British method, the method that suits our country best, is that of inquiry into the facts of the practices, as to whether they are in the public interest, and, after that, for practical action to be taken to deal with them. I believe that we are carrying this out. We are taking it a stage further. Respectfully, I prophesy that your Lordships will be glad in future years that this country has evolved its own method rather than taken another method which might create injustice. I beg to move.

Moved, to resolve, That this House welcomes the Report of the Monopolies Commission on Collective Discrimination as a basis upon which Her Majesty's Government can formulate its proposals.—(The Lord Chancellor.)