HL Deb 13 November 1997 vol 583 cc325-56

House again in Committee on Clause 18.

Lord Lucas moved Amendment No. 20: Page 10, line 30, after ("no") insert ("necessary").

The noble Lord said: This amendment is intended to address what I find to be one of the most tiresome abuses of a dominant position, and that is bundling. The noble Lord, Lord Borrie, whom I believe is enjoying a long supper, referred to it earlier as making the customer who wanted to buy one good take another good with it if he was going to get the first good. This is an abuse of a dominant position which goes back to biblical times, when the poor man was not allowed to marry Rachel until he had married her older sister. This is prevalent also in modern times with the way in which Microscoft is alleged to have been dealing with its rival Netscape.

There are many more domestic examples of this abuse. Without naming names, I can think of a major company which is in a dominant position in the supply of a raw material which insists that its customers also buy transport from it if they wish to buy the raw material. I can think of a dominant supplier of a consumer good who insists that if you want one of their goods you have to buy another half-dozen as well.

These are all practices which, it seems to me, should fall squarely within the prohibitions of Clause 18 of the Bill. However, the example given in Clause 18(2)(d), illustrating how this sort of abuse would be tackled, is restricted to, acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts".

Clearly, that is far narrower than is intended by this prohibition and far narrower than European practice. If we have an example in this Bill which is so narrow it will surely encourage our courts to define abuse narrowly, which is not what we wish to achieve. I know that this follows the wording of the European Treaty, but since we are dealing here, not with a piece of definitive law, but merely an example. it would be advantageous to render it into English rather than Eurospeak. It would be advantageous to render it nearer to what we mean and to put the word "necessary" between "no" and "connection" so that where companies are indulging in a practice where there is some connection, as indeed Microsoft would be able to say there was with its Internet Explorer and where there are indeed the domestic abuses I have illustrated, they would be able to claim that there was some connection and thereby they did not come under the example. I am sure the example was drafted to show the sort of abuses that were intended to be caught, and that therefore they should not be caught by this provision, but surely we should use wording more in line with our intentions rather than the particular wording that has arisen through copying a European statute. I beg to move.

8.45 p.m.

Lord Simon of Highbury

The noble Lord has given me the defence which I am afraid I must plead. Subsection (2) of the clause sets out an illustrative list. It is based, as the noble Lord rightly suggests, exactly on the corresponding illustrative list in Article 86. While I can see that the noble Lord, Lord Lucas, may wish to change its emphasis, I believe that the right course is to follow Article 86 as closely as possible.

Although the noble Lord may think that it is Eurospeak, it has the advantage of being absolutely clear, and for that reason reduces the business burden. I emphasise that the list is illustrative and amendments would not affect the substantive effect, prohibition of the abuse, but that is a secondary issue. We are talking about the clarity of the statement and I am afraid, as the noble Lord observed, we believe that it is better to stay as closely attuned to the Article 86 text as possible for reasons of clarity and lack of doubt for business.

I hope, on that basis that the noble Lord is prepared to reconsider and to withdraw the amendment.

Lord Lucas

I expect to end up by withdrawing the amendment but I would hope that the noble Lord could address himself, if not to the technical aspects of the amendment, to the substance of it. I would appreciate confirmation of the sort of anti-commercial practices outlined by the noble Lord, Lord Borrie, previously. I took the noble Lord's name in vain because the noble Lord, before supper, gave, as an illustration of an abuse of a dominant position, being forced to take one good when you wanted to buy another. I hope the noble Lord the Minister can confirm that that is very much the sort of thing which the clause is aimed at and that it is his hope and expectation that the Director General of the Office of Fair Trading will come down hard on such abuses when he has the ability to do so.

Lord Simon of Highbury

I understand the point that the noble Lord is making. In no way was I intending to suggest that the drafting should give any doubt as to the severe penalties that will be available if abuses of this nature can be proved.

Lord Lucas

I shall have to be content with that. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 21 to 26 not moved.]

Lord Simon of Highbury moved Amendment No. 27: Page 10, line 33, leave out ("in the market").

On Question, amendment agreed to.

[Amendments Nos. 28 to 30 not moved.]

Clause 18, as amended, agreed to.

[Amendment No. 31 not moved.]

Clause 19 [Excluded cases]:

[Amendments Nos. 32 and 33 not moved.]

Clause 19 agreed to.

Schedule 1 [Exclusions: Mergers and Concentrations]:

Lord Simon of Highbury moved Amendment No. 34: Page 39, line 25, leave out (", or would if engaged in result,").

The noble Lord said: This amendment is grouped with Amendments Nos. 36, 37, 39 and 40. Schedule 1 excludes mergers from the prohibitions to avoid overlap with existing merger control regimes at the UK and EC level. Exclusions under this schedule cover mergers both above and below the thresholds for investigation at UK level. The Government have listened carefully to comments from legal practitioners and others that the draft Bill published in August needed to provide for a wide exclusion of all mergers, including those involving the taking of effective control over a company. As a result of the consultation the schedule now provides for that wider exclusion, which I think has been much welcomed by the business community.

The schedule provides a general exclusion from the Chapter I prohibition for mergers that fall within the description of enterprises ceasing to be distinct in Part V of the Fair Trading Act 1973. However, to provide an objective definition for the exclusion, certain arrangements that may be treated as mergers for the purposes of the Fair Trading Act must be treated as mergers for the purposes of the exclusion. These are arrangements—broadly the acquisition of control or material influence by one business over another—to which the exclusion has been extended in response to the consultation. But this extension of the exclusion creates some risk of providing a loophole for anti-competitive agreements. The schedule therefore provides that the director may, with notice, remove the benefit of the exclusion from an agreement where he considers it would infringe the prohibition and would not merit an additional exemption. This approach has been developed in consultation with practitioners.

The Government intend that this ability for the director to remove the benefit of the exclusion should apply only in respect of mergers that are mergers by virtue of Section 65(3) or 65(4)(b) of the Fair Trading Act and should not apply to mergers cleared by the Secretary of State or which the competition commission has decided, on reference, qualify for investigation. The Bill as introduced provided for these limitations to be prescribed in regulations made by the Secretary of State. However, we want to give certainty from the outset for those kinds of mergers where there is no ability for the director to remove the benefit of the exclusion and we wish therefore to set out on the face of the Bill the categories of protected agreements in respect of which the director is not able to withdraw the benefit of the exclusion. Amendments Nos. 39 and 40 give effect to this and remove the order making power. The department's memorandum to the Select Committee on Delegated Powers and Deregulation signalled our intention to do so, as noted in the committee's report.

Amendments Nos. 34, 36 and 37 make drafting amendments. Amendment No. 34 removes unnecessary wording. We do not believe that the Chapter II prohibition would catch contemplated conduct. Amendments Nos. 36 and 37 amend the exclusion for newspaper transfers to limit the extent of the exclusion from the two prohibitions to agreements and conduct to the extent that they constitute such a transfer. They incidentally remove the Chapter II exclusion from provisions directly related and necessary to the implementation of a newspaper transfer.

I am conscious that this raises an issue that is relevant to Amendment No. 35 in the names of the noble and learned Lord, Lord Fraser of Carmyllie, and the noble Lords, Lord Kingsland and Lord Lucas. I would prefer to deal with the issue when we discuss Amendment No. 35 but I can assure the noble Lords that I will keep an open mind on that. I beg to move.

On Question, amendment agreed to.

Lord Kingsland moved Amendment No. 35: Page 39, line 27, at end insert—

  1. ("(I A) The exclusion provided by sub-paragraph (I) extends to any provision directly related and necessary to the implementation of the merger provisions.
  2. (1B) In sub-paragraph (IA) "merger provisions" means the provisions of the agreement which cause, or if carried out would cause, the agreement to have the result mentioned in sub-paragraph (I).").

The noble Lord said: Amendment No. 35 refers to paragraph 2 of Schedule 1 to the Bill. Its simple intention is to include in paragraph 2 the identical phrases to those included in paragraph 1(2) and (3), so that in the context of these mergers ancillary agreements will not be caught by prohibition 2. It is very hard for the Opposition to understand why ancillary agreements to mergers are given protection against the application of prohibition 1 but not protection against the application of prohibition 2. That is the reasoning behind Amendment No. 35.

Amendment No. 38 applies to paragraph 4 of Schedule 1 and the discretion it gives to the director general not to apply a particular agreement if a direction is given under that paragraph. I ask the Minister to look in particular at paragraph 4(2)(b), which states: the agreement is not a protected agreement". I have noted that the Minister has tabled his own amendment, Amendment No. 40, which defines protected agreements. I welcome that on behalf of the Opposition. However, it does not completely satisfy our objectives.

Perhaps I may ask the Minister to turn to heading (c) of his Amendment No. 40, beginning with the words, the agreement does not fall within paragraph (a) or (b)". Our difficulty here is that part of the heading in the ultimate and penultimate sentences in brackets, otherwise than as the result of subsection (3) or (4)(b) of that section

Those subsections refer to the Fair Trading Act 1973.

That Act allows the director general in some circumstances to investigate mergers where the control aspect is as low as 10 or 15 per cent. The effect of the exception in the brackets would be to continue to allow the director general, in certain circumstances where he wished, to look at mergers where the control factor was as low as 10 or 15 per cent. In the Opposition's respectful submission, that is too onerous a burden for mergers carrying that level of control to bear. We ask the Government to give an absolute exclusion.

The final amendment refers to what I think is an unintended, rather technical, point which is contained in paragraph 5(2). I quote: the Chapter II prohibition does not apply to the conduct if the Merger Regulation gives the Commission exclusive jurisdiction in the matter". Paragraph 9 of the merger regulation gives member states the authority to request that their national competition authority should look at a merger which has a Community dimension, so that to that situation the word "exclusive" does not apply. The way to cover the problem posed by paragraph 9 is simply to remove the word "exclusive" altogether, so that the ultimate and penultimate lines would read: the Chapter 11 prohibition does not apply to the conduct if the Merger Regulation gives the Commission jurisdiction in the matter".

I beg to move.

9 p.m.

Lord Simon of Highbury

In Amendment No. 38 Members of the Committee seek to take away the ability of a director under certain circumstances to remove the benefit of the general mergers exclusion from an anti-competitive agreement. As I have already stated, we have listened very carefully to comments from legal practitioners and others that the draft Bill published in August should provide a wide exclusion of all mergers. We accepted that that point had force. However, there were concerns that in widening the exclusion there might be a risk of creating a loophole for anti-competitive agreements. The very width of what is to be regarded as a merger means that there is a risk that anti-competitive agreements might masquerade as mergers.

An approach was therefore developed, in consultation with the practitioners, in which the exclusion was widened, but with the provision for the director to be able, with notice, to claw back the benefit of the exclusion where he considers that it would infringe the prohibition and would not merit an unconditional exemption.

The claw-back is not to apply to certain categories of agreement. In the Bill as introduced these were to be prescribed by order. Government Amendments Nos. 39 and 40 will now set out these categories on the face of the Bill. I believe that it is right that where we can reasonably and properly widen exclusions we would and should do so. If it is necessary to provide safeguards in order to be able to widen such an exclusion, I believe that that is the right balance. I shall refer to a further example in relation to a later amendment where we hope to provide an exclusion, but with an appropriate safeguard provision.

However, if I were to accept the amendment we would lose all the safeguards. We would then have opened up a significant loophole in the prohibition as a result of the width of the exclusion. I believe that the better approach is to limit the claw-back powers to what is necessary and not to remove them altogether.

Amendment No. 35 would exclude ancillary provisions from Chapter II prohibitions as well as from Chapter I prohibitions, as the noble Lord mentioned. The purpose of the exclusion from mergers is to leave them to be dealt with as now under the merger regime of the Fair Trading Act to the extent that they fall within its jurisdiction, and not to subject them to new controls to the extent that they do not. Hitherto we have seen the risk of a merger being caught wrongly by the Chapter II prohibition as being a matter of the formation of the merger itself. We have viewed any ancillary restriction as being part of an agreement to which the Chapter I prohibition might apply, hence the exclusion from the Chapter I prohibition.

The noble Lord prompts the question whether we are quite sure that ancillary provisions which should properly be scrutinised as part of the merger regime can never fall foul of the Chapter II prohibition. That is a point on which I would like to reflect further. I am grateful to the noble Lord for drawing it to my attention.

Amendment No. 41 would delete the word "exclusive" in paragraph 5. The word is included in order to target the exclusion on EC concentrations to the extent that the Commission has exclusive jurisdiction. In so far as the UK may have competition jurisdiction because part of the concentration is referred back to it under the EC merger regulations, the exclusions in paragraphs 1 and 2 should apply. That is the effect of the paragraph as drafted.

We were talking about the level of a shareholding acquired and whether it will be defined as a merger or whether, if I can express myself in that way, it would be there for loophole purposes. The words in brackets in the new provision make agreements where a low level of control is acquired capable of being looked at as anti-competitive agreements. It does not affect their treatment under merger control. The issue is whether one can apply the anti-competitive agreement in order that one can test the loophole theory. The worry was that anybody taking small participations might claim merger and then avoid the competition clause. So it is effectively not to be looked at in the merger section but rather to be taken in the competitive section.

As I say, I would like to reflect further on the point made under Amendment No. 35. In the light of the points I have made, I hope that for the present the noble Lord will be prepared to withdraw the amendment while that particular point is considered.

Lord Kingsland

I thank the Minister for responding so sympathetically. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Simon of Highbury moved Amendment No. 36: Page 39, line 31, leave out from beginning to second ("transfer") in line 32 and insert ("The Chapter I prohibition does not apply to an agreement to the extent to which it constitutes, or would if carried out constitute, a").

On Question, amendment agreed to.

Lord Haskel moved Amendment No. 37: Page 39, line 33, at end insert— ("( ) The Chapter II prohibition does not apply to conduct to the extent to which it constitutes such a transfer.").

On Question, amendment agreed to.

[Amendment No. 38 not moved.]

Lord Simon of Highbury moved Amendments Nos. 39 and 40:

Page 40, line 4, leave out from (" 4(3)(a)") to end of line 6.

Page 40, line 10, at end insert—

("Protected agreements

An agreement is a protected agreement for the purposes of paragraph 4 if—

  1. (a) the Secretary of State has announced his decision not to make a merger reference to the Competition Commission under section 64 of the Act of 1973 in connection with the agreement;
  2. (b) the Secretary of State has made a merger reference to the Competition Commission under section 64 of the Act of 1973 in connection with the agreement and the Commission has found that the agreement has given rise to, or would if carried out give rise to, a merger situation qualifying for investigation;
  3. 332
  4. (c) the agreement does not fall within paragraph (a) or (b) but has given rise to, or would if carried out give rise to, enterprises to which it relates being regarded under section 65 of the Act of 1973 as ceasing to be distinct enterprises (otherwise than as the result of subsection (3) or (4)(b) of that section); or
  5. (d) the Secretary of State has made a merger reference to the Competition Commission under section 32 of the Water Industry Act 1991 in connection with the agreement and the Commission has found that the agreement has given rise to, or would if carried out give rise to, a merger of the kind to which that section applies.").

On Question, amendments agreed to.

[Amendment No. 41 not moved.]

Schedule 1, as amended, agreed to.

Schedule 2 agreed to.

Schedule 3 [General Exclusions]:

Lord Simon of Highbury moved Amendment No. 42: Page 46, line 32, leave out from ("75") to ("(agreements") in line 33.

The noble Lord said: In moving this amendment I shall speak also to Amendments Nos. 43 and 44. These amendments extend the exclusion for planning obligations to cover Crown planning obligations. These are analogous to the planning obligations under Section 106 of the Town and Country Planning Act 1990 that may be entered into under Section 299A of that Act in respect of Crown land. There is no reason to treat Crown land differently from other land. I beg to move.

On Question, amendment agreed to.

Lord Haskel moved Amendments Nos. 43 and 44: Page 46, line 33, after ("land)") insert ("or 246 (agreements relating to Crown land) of the Town and Country Planning (Scotland) Act 1997) Page 46, leave out lines 36 and 37 and insert— ("(2) In sub-paragraph (I)(a), "planning obligation" means—

  1. (a) a planning obligation for the purposes of section 106 of the Town and Country Planning Act 1990; or
  2. (b) a planning obligation for the purposes of section 299A of that Act.").

On Question, amendments agreed to.

Lord Ezra moved Amendment No. 45: Page 47, line 8, at end insert— ("( ) In respect of conduct by a regulated utility, there shall be a rebuttable presumption that conduct which is in compliance with its licence and the statute under which its licence was granted or treated as granted does not constitute a breach of any prohibition under Chapter II.").

The noble Lord said: As the Bill is drafted the regulators will express prohibition powers for their own industry: concurrent powers with OFT. However, in each of the regulated industries there are already detailed rules set out in the licences which each company has to abide by. Those licences cover price controls, customer protection and how a company may respond to competition. In the case of gas, the licences had considerable parliamentary scrutiny, as I know, as recently as 1995. Despite that, there is little mention of the licences in the Bill, so behaviour that complies with a licence could then be questioned by the regulator as anti-competitive. The amendment tries to get round that problem by stipulating that behaviour that complies with a licence should be assumed not to be anti-competitive until proved otherwise.

A strong feeling throughout the Second Reading debate, and now in this Committee, has been our concern about the way in which utility regulators will exercise their powers under the Bill. The amendment simply states that the behaviour of a utility that complies with an existing licence provision should be assumed not to be an abuse of a dominant position unless proved otherwise. There is little mention in the Bill of how the provisions should interrelate with licence conditions. It would be wrong for the regulators not to consider the licences when exercising their new powers. That would undoubtedly be a worry and would put the utilities in the difficult position of complying with one statute but not knowing whether they had infringed another. I beg to move.

Lord Fraser of Carmyllie

I understand it to be a courtesy of your Lordships' House, but not a requirement, that if the Opposition want to agree with a proposal it is appropriate to signal that by putting a name to the amendment. I apologise for not having done so, but I should like to take this opportunity to say that with regard to Schedule 3 and this amendment, we have considerable sympathy with the points raised by the noble Lord, Lord Ezra. At a later stage we shall want to return to our concern that if the Government want to persist with a scheme under which the regulator is put into pole position, there exist opportunities nevertheless whereby a third party might then revert to the broader, general provisions relating to competition. That ought to be restricted so far as possible. If it were not, an unacceptable degree of uncertainty would exist. We are thinking of companies such as BG which have met their requirements (having possibly battled long and hard with the regulator to reach a compromise). It seems unacceptable that thereafter a third party might re-enter to challenge, say, BG, over price caps.

Whether the particular approach promoted by the noble Lord, Lord Ezra, is the most suitable means of achieving that end we leave open, but at this stage we signal that we share his concern that there should not be that ping-pong between the regulator (in the premier position) and those challenging companies. Such an approach has its attractions and might have the advantage of avoiding the problem almost entirely other than in the most exceptional circumstances. The presumption which the noble Lord has suggested ought to be included is not an absolute one, but, as the wording of the amendment suggests, it would be rebuttable.

ven if the Government are not prepared to accept the exact wording of the amendment, I hope that they will at least understand and be sympathetic to what the noble Lord seeks to achieve. We on the Opposition Front Bench ask nothing more than that the Minister gives us some signal that he will reconsider this point before we return to it on Report.

Lord Simon of Highbury

I recognise the point which has been raised. Schedule 3(3) provides an exclusion for compliance with legal requirements. It is clearly right that if a company is required to do something by law, it should not be caught by the prohibitions for complying with that requirement. In the utility sector, such legal requirements include the requirements imposed by the licence conditions. That is quite clear. It is the Government's policy that prohibitions should apply in the regulated utility areas. The purpose is to ensure that anti-competitive conduct can be dealt with.

It is wrong to make the assumption that licence conditions deal with all competition concerns that can arise particularly in a dynamic market place. The point of having separate regulation and expertise with the regulator is the fact that these markets are developing in very different ways and at a different pace as privatisation and competition grow in the market place. We must think of them as being different. If we made this assumption there would be no need to apply the prohibitions in these areas, but precisely because of the changes in the market place we have a certain amount of caution. As we do not make that assumption we believe that we would give utilities false comfort about the real position under the prohibitions if we accepted the amendment that there should be a rebuttable assumption that conduct in conformity with the licence did not infringe the prohibition.

If anti-competitive conduct which is not covered by explicit licence conditions takes place one wants the prohibition to be applied as rigorously and as effectively as elsewhere in the economy. I do not believe that it is appropriate to introduce a provision that seeks to alter the burden of proof in relation to the Chapter II prohibition for conduct in compliance with the licence conditions. So far as concerns the process, the director, the tribunal and the courts can in any event take account of all the relevant factors in applying the prohibitions. When we come to the process later it will become clear that a third party who brings an unreasonable or vexatious case before the Commission will be turned down.

9.15 p.m.

Lord Fraser of Carmyllie

I completely understand what the noble Lord has said about a requirement. We take no exception to that provision. It is desirable and well positioned within the scheme of the Bill. The particular point is related to the price-capping provision. As the noble Lord will be aware from his former position as a doubtless interested observer of the battle between the then British Gas and Clare Spottiswoode, there was an intense battle about the establishment of the price cap, including a reference to the MMC. It seems to us to be at least worthy of exploration that after such a battle has been concluded—perhaps there will be other battles in future—as the companies settle down and understand that that is where the line has been drawn, there may be a risk that a third party has the capacity to intervene and take it back into the general competitive regulation. It is the uncertainty that that causes which is the source of our anxieties.

Doubtless there are expert advisers within the noble Lord's department who can deal with this matter. We do not suggest that there should never be intervention, but that a rebuttable presumption, not an absolute or irrebuttable presumption, in principle is the line that should be pursued.

Lord Simon of Highbury

I first respond to the issue of the price cap which, quite pertinently, the noble Lord has tabled. I should like to go back to an earlier exchange with the noble Lord, Lord Ezra. Pricing within a price cap is not a guarantee against anti-competitive behaviour. We have had a long discussion in other circumstances on the question of predatory pricing. The noble Lord spoke about the proposals of BG in discussion with the regulator. On the basis of experience, the discussion has often turned on how close it is to the price cap, not how far below it it may be given the price cap regime. It is always open to the company, if there is a concern that the cap may be challenged under the Chapter II prohibition, to make a notification to his regulator to obtain guidance. I believe that there is an opportunity to test the cap on the upside by guidance, and that the regulator always gives and is obliged to give. But one should not forget the issue of predatory pricing if the price level is well below the cap. There is no guarantee as to which of those two will pertain. It is for that reason that I believe that the prohibition is still a valuable notion in regard to licence regulation.

I shall reflect strongly on the question of whether rebuttal is an appropriate concept as to the way that the guidance process may be undertaken. In the meantime I would ask and urge the noble Lord, Lord Ezra, to withdraw his amendment if he is satisfied that we have positioned the debate in the right area.

Lord Ezra

May I express my appreciation to the noble and learned Lord, Lord Fraser, for his strong support. I am sorry that the noble Lord, Lord Simon, did not go a bit further. I take it that he is going to reflect on this. He having said that, that will lead me in a moment to withdraw the amendment.

We are left, nevertheless, with this issue: that these enterprises are operating under licence. There are two qualifications in the amendment: one is the rebuttable presumption—it is not a firm presumption, it can be rebutted—and, secondly, conduct which is in compliance with the licence.

The noble Lord referred to market evolution and changes of circumstances. Of course these can always occur, and if anything in those changing situations should lead the enterprises to do something which infringes this Bill when it becomes law, then there ought to be intervention.

Within the terms of the licence, and subject to this rebuttable presumption, the Government should attempt some reconciliation between the two pieces of legislation. I would take it very much amiss if I were in charge of one of those enterprises and meticulously stuck to the licence conditions, and then found that I was being attacked through this wider legislation, with the adjudicator being the same regulator who had set the regulatory terms. I would find that an intolerable situation to live under.

I hope that within the noble Lord's reflections he will take that into account and, at the next stage, come forward with some proposed wording. With that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Simon of Highbury moved Amendment No. 46: Page 47, line 10, after ("Kingdom") insert— ("( ) imposed by or under the Treaty or the EEA Agreement and having legal effect in the United Kingdom without further enactment;").

The noble Lord said: I move Amendments Nos. 46, 71 and 251. Paragraph 3 of Schedule 3 provides an exclusion from the prohibition for things done in compliance with legal requirements, the rationale being that we should not prohibit what the law requires.

The main amendment in this group is No. 46, which extends this exclusion to cover requirements imposed by or under the EC treaty or the European Economic Area Treaty, which have effect within the UK without further enactment.

Amendments Nos. 71 and 251 are drafting amendments and apply the definition of the EEA treaty to Part I as a whole. On this point it will be helpful to know that we are considering for Report a number of other possible exclusions, one of which will be the exclusion from Chapter I prohibition of a regulated market for investment services in a EEA regulated state, just as similar markets in the UK regulated under the Financial Services Act have been excluded under Schedule 2.

On Question, amendment agreed to.

[Amendment No. 47 not moved.]

Lord Lucas moved Amendment No. 48:

Page 48, line 13, at end insert—


.—(1)The Chapter I prohibition applies to an agreement which relates to the production of or trade in an agricultural product only to such extent as the Secretary of State may by order provide.

(2) In this paragraph "agricultural product" means any product of a kind listed in Annex II to the Treaty.").

The noble Lord said: This amendment addresses the problem that agricultural co-operatives may experience under the Bill. The Bill quite rightly extends a general prohibition to horizontal agreements, agreements between people who are competitors in an industry. Agricultural co-operatives have had a long and useful role in the past—and one hopes for a similar future—as well as having a significant role as such in EC legislation. They might hope for exclusion under the de minimis provisions, eliminating small businesses from the scope of the Bill, but it does not take many farmers to band together before their turnover exceeds any likely level of that provision: perhaps just 50 or 100 farmers, given that those co-operatives trade in products and trade several times in their turnover, as it were, in physical terms, and may also provide the raw materials that farmers need.

It may need only 100 farmers to make up a £50 million turnover business when one reaches the agricultural co-operative level. They might hope for exemption under Clause 9, but they fail under Clause 9(a) because they are too far from the consumer to show that they are demonstrating a fair share of the resulting benefit to the consumer. They would fail also under Clause 9(b)(ii).

We turn to the question of how we deal with that problem. The amendment is intended to provide a means of doing so. It excludes agriculture, as defined in the treaty, from the scope of Chapter I, but allows the Secretary of State to provide certain subsets of agricultural agreements which would fall within Chapter I. That gives the Secretary of State the necessary ability to curb any abuses that there might be, while allowing agricultural co-operatives, which are not the most sophisticated and worldly of businesses, to proceed in any ordinary way, and to operate on the presumption that their ordinary way of doing business will not land them in trouble under the Bill.

This is a problem which does not apply to agriculture only; it applies to any small producers of primary products who are selling into a market which is dominated by much larger producers. The other obvious candidates would be fishermen and forestry products. I do not know those markets well, and I am not sure that they have organisations like agricultural co-operatives operating; but forestry is one that could do with it, and it would benefit greatly if those structures existed. We would see a great many under-used woodlands coming into use. That is diverging from the main point, but I hope that the Government will take on board the thrust of the amendment, will look rather wider than the amendment goes, and produce on Report an amendment which suits their tastes, and answers the problems which I have raised. I beg to move.

Lord Stanley of Alderley

I should declare an interest in so far as I have been a director of a few agricultural co-operatives. Therefore I must fall into the category of being fairly naïve, according to my noble friend. I support my noble friend, and I should, first, like to thank the Minister, the noble Lord, Lord Simon, for having taken so much trouble in contacting me last week to explain the Government's position on this matter.

I want to ask tonight that the Minister consider the matter, tell us what the position is, and if he cannot give a definitive answer tonight, I hope that he will be able to do so on Report. I am sure that he, like me, would like to make a decision fairly quickly rather than procrastinate on the matter.

Lord Graham of Edmonton

I am delighted to have support for co-operatives from the noble Lord, Lord Lucas. It is not a surprise. They are good organisations. They need some assistance and encouragement. The interest I declare is as chairman of the United Kingdom Co-operative Council which has, as one of its members, the Agricultural Co-operative Movement. The case for a modest interpretation of what can be done to assist agricultural co-operatives, and others of a similar size and position, has been well stated.

My noble friend the Minister and his colleagues have an opportunity, when one looks at "Competition" and the big boys, to remember that there are many little people struggling. I am not saying that the farmers are starving or in need, but they need to feel loved and wanted. One of the ways in which that can be achieved is by careful consideration of a Bill such as this, which could offer some ease. I hope that the Minister will do so and that he has some helpful comments to make.

Lord Lucas

Perhaps I, too, should have declared an interest in that my great-uncle, who held my title, set up a co-operative bacon factory in Hitchin in 1910.

Lord Graham of Edmonton

Is it still going'?

Lord Lucas

I have not been to see.

Lord Graham of Edmonton

You never said a rasher thing!

Lord Simon of Highbury

Perhaps I may take this opportunity to intervene and, unfortunately, take the mood of levity down a peg or two. I hope that I am able to offer solace to the noble Lords, Lord Lucas and Lord Stanley. The exclusion sought by the noble Lords has also been requested by the National Farmers Union and the Federation of Agricultural Co-operatives as part of the consultation process we have been undertaking.

The noble Lords made a good case for providing an exclusion on the Chapter I prohibition. Such an exclusion might well be along the lines of an EC treatment of agricultural agreements set out in EC Regulation 26/62. That would limit so far as possible any inconsistencies with the EC approach.

I believe the case to be strong. The points made merit very careful consideration and I shall do that between the Committee and Report stages. I hope that in the meantime the noble Lord, Lord Lucas, will withdraw his amendment.

Lord Lucas

Yes, I am happy to withdraw the amendment. Clearly, if the Government are unable to produce proposals by Report or Third Reading we may have to insist on something. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

9.30 p.m.

The Earl of Lytton moved Amendment No. 49:

Page 48, line 13, at end insert—

("Legal estates and equitable interests in or over land

The Chapter 1 prohibition does not apply to agreements creating or disposing of a legal estate or equitable interest in or over land, as defined in section I of the Law of Property Act I925.").

The noble Earl said: Perhaps I may first declare an interest as a practising surveyor with some ongoing involvement with commercial property. I have already indicated to the Minister that this is a probing amendment. It was tabled only earlier this week and the Minister has not had time to respond to me directly. I have bounced it on him and I apologise to him for that.

The amendment arises out of concerns expressed to me recently by the British Property Federation and the Royal Institution of Chartered Surveyors. The Minister is aware of those concerns.

There are at least two categories of commercial property agreements that I have in view in relation to the amendment. First, there are those commercial agreements which arise out of sales and joint ventures, often containing covenants and restrictions which may bind successors downstream. They are commonly encountered in property redevelopment schemes. The second category relates to commercial leases, in particular those covenants and conditions relating to what is euphemistically referred to as the interests of good estate management. They may occur in particular in multiple let developments and govern such things as the category of use of premises, the way in which insurance payments and policies are placed and maintenance service charge matters as well as assignments and alienations of leasehold interests. The question is whether those will be brought under Chapter I. Whatever the answer, it is accepted that they will be subject to the provisions of Chapter II.

Chapter I would be retroactive, so it could at worst result in some important contractual terms being declared void if challenged. That could create all kinds of management risks and materially affect investment values, certainly while a new equilibrium was threshed out in the market place. That is undesirable. In moving the amendment, it is not my purpose to defend commercial practice in property matters which may be deemed to be anti-competitive—far from it—nor even other undesirable practices which may not be competition matters. But I want to get some certainty into this matter and to achieve a proper assessment of the Bill's impact on property agreements and the scope of that impact; how far would it run if property agreements are caught in the manner that I fear might be the case?

There is an added difficulty here in that property contractual matters are not conveniently divided into vertical and horizontal agreements. They just do not respond to that type of categorisation. Therefore, the effect of the amendment is to add another category of exemption. But its purpose is merely to probe the Government's intentions and to explain that there is some urgency in connection with the need to know in the commercial property industry because there is a whole raft of law and practice, as well as property economics, which could be materially affected in that regard. I beg to move.

Lord Simon of Highbury

First, I thank the noble Earl, Lord Lytton, for his positioning of the amendment. The Government accept that a good case can be made not to subject certain agreements relating to land to the Chapter I prohibition. When the Government raised that question in the consultation document, that was certainly the response that they received.

However, as we have found with vertical agreements, the problem of finding a clear definition which will prove of real value is complex. It has not been solved by the noble Earl's amendment which I recognise was drafted by the British Property Federation. To my mind, that would provide a very unclear exclusion which would foster the uncertainty which the noble Earl wishes to avoid. It would also very possibly be narrower than the BPF intends and might not be appropriate. Nor does it deal with the position in Scotland which has a different system of law which may not be amenable to the approach set out in the amendment.

Scope of a possible exclusion for certain land agreements has been discussed with the Lord Chancellor's department and the Department of the Environment, Transport and the Regions. Those discussions have made progress and are continuing. I hope that in the not too distant future, we shall have worked out an approach to the question which my officials will then share with interested parties such as the BPF.

On the basis of those comments and the position of the amendment, I hope that the noble Earl will feel able to withdraw the amendment at this time.

The Earl of Lytton

I thank the Minister very much for that detailed reply. Certainly, I should not wish to defend the precise wording of the amendment which, as he rightly said, was drafted by the British Property Federation. However, it has enabled me to raise the point with him and I am grateful for his response.

There must be seen to be some urgency about this in terms of making sure that property interests are not gratuitously destabilised in a way that would be manifestly unsatisfactory. It is an understatement to say that there is quite a lot at stake here. I do not intend to press the amendment but I should like to feel that the Minister will be able to return with something more definite at a later stage of the Bill and not ask the property industry to hold with the situation of uncertainty until some time after the Bill has become law. That would be terribly unsatisfactory. I reserve my position to return to this matter later in the Bill's progress and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Currie of Marylebone moved Amendment No. 50:

Page 48, line 13, at end insert—

("De minimis exceptions

The Chapter 1 prohibition does not apply to an agreement in respect of which a direction under section 21(2) of the Restrictive Trade Practices Act 1976 is in force immediately before the commencement date").

The noble Lord said: This amendment addresses the question of compliance costs for business. There are a whole raft of agreements under previous legislation, particularly the Restrictive Trade Practices Act, which may require approval and business will certainly need reassurance that it complies with the new Bill.

The Bill currently provides for a five-year transitional period for such agreements before they require approval. The estimated costs in the compliance costs estimate attached to the Bill is that that process of getting scrutiny would cost between £4 to £10 million. That is quite a substantial amount of the one-off transitional costs associated with the Bill and clearly, if it were possible, it would be desirable to reduce those costs.

Therefore, in that compliance cost assessment exercise the Government indicated that they were examining closely whether the cost of scrutinising such agreements was justified. One course proposed in the amendment would be to exclude such agreements from the Chapter I prohibition, not just for a transitional period but on a permanent basis, subject to appropriate safeguards, if necessary, which are not to be found in this current form of the amendment and to save those compliance costs on business without in any way affecting the objectives of the Bill. It would be helpful to have an indication from my noble friend the Minister as to the Government's intentions in that direction. My noble friend may also wish to respond to a question of which I gave him notice and clarify the purpose of some aspects of Clause 15 and Schedule 2 to the Bill. I beg to move.

Lord Simon of Highbury

I am grateful to my noble friend Lord Currie for the opportunity to address the question of agreements which have received a direction under Section 21(2) of the RTPA. These agreements are ones where restrictions excepted, or information provisions made, were found not to be of such significance as to call for investigation by the restrictive practices court. Many respondents to the August consultation document, as my noble friend Lord Currie said, referred to the effort and cost that would be required to review such agreements, even after a five year transitional period, and asked that they should remain outside the scope of the Chapter I prohibition for the full life of the agreements. The CBI has also forcefully put that point to us.

The Government, of course, wish to minimise the cost to business of complying with the prohibitions. We have considered the position and believe that an exclusion for the generality of agreements which have received directions under Section 21(2) is the right approach. However, there is the possibility that there may be agreements which have received Section 21(2) directions but which may turn out in practice to have anti-competitive effects. An exclusion should, therefore, be subject to a power for the Director General of Fair Trading to claw back the exclusion in certain circumstances. The Government intend to return on Report with an amendment on that basis.

I hope that my noble friend will be content to withdraw his amendment after I have spoken to his secondary question which relates to the Schedule 2 application. The schedule disapplies the Chapter 1 prohibition from certain agreements which are subject to separate competition scrutiny under other enactments. The enactments concerned are the Financial Services Act 1986 (which deals with the regulation of investment businesses); the Companies Act 1989 (Part II of which deals with the supervision and qualification of company auditors and its equivalent in Northern Ireland): and the Broadcasting Act 1990 (which, among other things, deals with the Channel 3 news provisions and networking arrangements).

Schedule 2 amends existing provision of those enactments which provide for modifications or exclusions from the Restrictive Trade Practices Act in respect of agreements which are subject to competition scrutiny under those enactments. The RTPA is repealed under Clause 1 of the Bill. Where agreements are scrutinised under other competition scrutiny regimes specially constructed to deal with a particular category of agreement I do not believe it is right for them to be subject also to the Chapter l prohibition. That would just create an unwelcome and unjustified double jeopardy.

The competition scrutiny regimes in question offer an effective means of ensuring that agreements in those areas are not anti-competitive. However, we need to ensure that the amendments to the competition regimes and the scope of the exclusion provided by this schedule are correct.

It has come to our attention that it may be necessary to make some amendments to ensure that this is the case. For example, there may be a need to make amendments in relation to the producer responsibility regime. We are considering whether changes to the schedule are indeed required and will, if necessary, bring forward amendments at Report. After that statement, I shall speak to Clause 15. I am sure that the Committee has been waiting for this.

Clause 15 sets out the effect of the giving of guidance by the director that an agreement is unlikely to infringe the Chapter I prohibition whether or not it is exempt, or that it is likely to benefit from an exemption. The director is to take no further action under this part against the agreement except in specified circumstances. These include, for example, where he has reasonable grounds for believing that there has been a material change in circumstances since he gave his guidance. The clause prevents a penalty being imposed in respect of an infringement of the Chapter I prohibition by an agreement which this clause applies. The director is able to remove the immunity in specified circumstances. If he does so because he has a reasonable suspicion that the information on which he based his guidance, and which was provided by a party to the agreement, was incomplete, false or misleading in a material particular, he is able to backdate the removal of immunity.

I believe this provision is important and will greatly assist business by giving it the security that the DGFT will be able to take further action in respect of an agreement only in specified circumstances if the DGFT has given favourable guidance of the kind to which Clause 15 applies. We are considering whether any amendments are needed in relation to this clause. In particular, we are considering whether the use of the expressions "likely to infringe" or. "unlikely to infringe" are consistent here and elsewhere in the Bill. We are considering whether there is a need to bring forward amendments at Report to ensure that each of these clauses in the Bill is consistent in this respect. I hope that that explanation satisfies the noble Lord, Lord Currie, and that, together with my response to his amendment, he will feel able to withdraw the amendment at this stage.

9.45 p.m.

Lord Currie of Marylebone

I am grateful to my noble friend the Minister for that full and helpful response. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 3, as amended, agreed to.

Schedule 4 [Professional Rules]:

[Amendments Nos. 51 and 52 not moved.]

Schedule 4 agreed to.

[Amendment No. 53 not moved.]

Clause 4 [Individual exemptions]:

Lord Simon of Highbury moved Amendment No. 54: Page 3, line 32, after ("rules") insert ("under section 49").

The noble Lord said: This is a drafting amendment. I beg to move.

On Question, amendment agreed to.

Lord Berkeley moved Amendment No. 55: Page 3, line 34, at end insert— ("( ) The Director shall publish full details of all requests for individual exemptions within 28 days of receipt in such a way as he thinks most suitable for bringing them to the attention of those likely to be affected.").

The noble Lord said: In moving Amendment No. 55, I wish to speak also to Amendment No. 63. Amendment No. 55 refers to individual exemptions and Amendment No. 63 to block exemptions, imposing upon the director the requirement to publish details of all requests for exemptions within 28 days of receipt. The reason for the amendments is that unless there is some obligation on the director to publish information about applications for exemptions, the first people may hear of this, and also organisations which may potentially be affected by such applications, is under the circumstances mentioned in Clause 8(1) which states that,

"Before making a recommendation under section 6(l), the Director must publish details of his proposed recommendation".

I submit that, in many cases, that may be too late for representations to be made. Unless I have missed the provision elsewhere in the Bill, it would be very helpful if information were made available; indeed it is essential. I therefore beg to move the amendment.

Lord Simon of Highbury

It is important that, before the director grants individual exemptions or recommends that a block exemption order be made, interested parties are fully aware of the director's proposed action.

The Bill already provides, in paragraph 5 of Schedule 5, that when the director is determining an application for a decision to grant an individual exemption, he is required to publish the application, in such a way as he thinks most suitable for bringing it to the attention of those likely to be affected by it, unless he is satisfied that it will be sufficient for him to seek information from one or more particular persons other than the applicant". When considering whether to recommend that the Secretary for State makes a block exemption order, subsection (1) of Clause 8 requires the director to, publish details of his proposed recommendation". That provision will ensure that there is adequate consultation before the director recommends a block exemption. The nature of a block exemption means that undertakings do not have to apply to the DGFT in order to benefit from it, unless the opposition procedure in Clause 7 applies. If an undertaking applies for a decision under Clause 14, the DGFT may decide that the agreement is exempt from the prohibition because of the block exemption. The application will be published as described above.

As the Bill already contains provisions to ensure that interested parties are able to make representations relating to block and individual exemptions, I ask my noble friend whether he is prepared to withdraw his amendment.

Lord Berkeley

I am grateful to my noble friend the Minister for that explanation. I shall read it very carefully, but I think it probably satisfies my requirements. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4, as amended, agreed to.

Clause 5 [Cancellation etc. of individual exemptions]:

Lord Kingsland moved Amendment No. 56: Page 3, line 37, at end insert (", after hearing any representations from the undertakings concerned").

The noble Lord said: I think that the general intention of these clauses is to include an element of sportsmanship in the relationship between predator and prey. The Minister will be aware of those sections into which the Opposition wish to insert the appropriate protection.

Amendment No. 56 relates to page 3, line 37, inserting: after hearing any representations from the undertakings concerned"; and Amendment No. 57 proposes the same insertion at line 44 on page 3. Amendments Nos. 77 and 78 relate to page 9 of the Bill. The insertion is slightly modified, but again has the same effect: after notifying the party which made the application and considering any representations". Finally, Amendments Nos. 89 and 90 are amendments to the same effect.

Bearing in mind that the end result of this procedure is a fine—a penalty—we believe it is important that a company that is likely to be on the end of an investigation should have proper time to reflect and to make counter-representations.

I am aware that we have not yet seen the Minister's proposals on the detailed procedure for reply. He may well have in mind some appropriate assertions of the sort I have mentioned at that stage. I beg to move.

Lord Simon of Highbury

If the director cancels an individual exemption and imposes a penalty, his decision will be appealable to the competition commission under Clause 45. The appeal process provided in the Bill is the proper protection to which parties affected by the director's decisions are entitled. However, I accept that in addition there will need to be rules governing the procedures when the director takes further action after having decided that one of the prohibitions has been infringed or when cancelling an individual exemption, varying or removing a condition or obligation or imposing additional conditions or obligations.

If I may draw Members' attention to Schedule 9, they will see that paragraphs 5 and 6 make provision for rules on the procedures to be followed in those cases. I would expect that, among other things, the rules would make provision for the issues of notification and listening to representation raised by Members. I therefore hope that they will feel able to withdraw their amendments. The rules should make the appropriate provision clear.

Lord Lucas

I feel that the Minister could he a little more generous. There were so many qualifications in his answer that doing the exact opposite of what he implied would be perfectly consistent with what he said. If the Minister feels unable to go beyond the brief this evening, I hope that he will be able to feel more definite about the matter at Report and will give us satisfactory guidance to the effect that those who make applications and are concerned in this matter will be consulted in the way suggested by the amendments rather than saying that they might just possibly, maybe, one day, be consulted.

Lord Simon of Highbury

That sounds like a challenge to which the noble Lord will respond.

Lord Kingsland

I am much obliged to the Minister for his response. I simply add that it is not just in the interests of the alleged offender that these amendments are proposed. Some delay for consideration on behalf of the director general may lead him, for perfectly legitimate reasons, to change his mind about his original intentions. In those circumstances the appeal process would not have to be relied upon and a great deal of time and money would be saved by everyone. I thank the Minister for his response and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 57 not moved.]

Lord Graham of Edmonton moved Amendments Nos. 58 to 61: Page 4, line I, leave out from ("condition") to end of line and insert ("allows the Director, by notice in writing, to take any of the steps in subsection (l)."). Page 4, line 4, after ("(2)") insert (", (3)"). Page 4, line 6, after ("(2)") insert (", (3)"). Page 4, line 9, after ("(2)") insert (", (3)").

The noble Lord said: In moving Amendments Nos. 58 to 61, I shall speak also to Amendment No. 62, which addresses a slightly different point.

This part of the Bill deals with the powers of the director general to cancel individual exemptions. Members of the British Retail Consortium are concerned about the form in which the words appear at present. Exemptions are important and valuable and in some instances could well be crucial. Therefore they are not to be given or abused lightly and certainly will not be lost lightly. The Bill provides for the director general to grant individual exemptions from the prohibition provided for in Clause 2 in respect of agreements if certain circumstances are satisfied. The director general can make individual exemptions subject to conditions.

The Bill provides that: If the Director has reasonable grounds for believing that there has been a material change of circumstance since he granted an individual exemption", Or, If the Director has a reasonable suspicion that the information on which he based his decision to grant an individual exemption was incomplete, false or misleading in a material particular", he may by notice in writing

  1. "(a) cancel the exemption;
  2. (b) vary or remove any conditional obligation: or
  3. (c) impose one or more additional conditions or obligations".
However, the Bill provides that, if a condition in the individual exemption has been breached, the exemption is automatically cancelled and the Clause 2 prohibition will apply.

The amendments that I have moved, in effect, are saying to the Minister, "Steady on, it is possible to commit what, in the context, is a minor breach, and yet having done that there could be a technical breach such as a failure to provide information on time." That seemed possibly to fall within the ambit of what the director general can do. Therefore, with a small, modest dereliction one loses the benefit of the whole exemption. We think that is wrong. We suggest in these amendments that the director general should have power to impose a remedy proportionate to the problem, including the cancellation of the exemption if that is appropriate.

Amendment No. 62 replaces the automatic termination provision with one providing that the block exemption may contain provisions whereby the director general can by notice cancel a block exemption in respect of any agreement if there is a breach of condition for the reasons set out in the revised amendments to Clause 5.

Again, as with every amendment moved in the past seven or eight hours, they are substantially probing and designed to get from the Minister and his colleagues a reaction following which there may be further action at a later stage.,

This is a modest amendment and in the spirit of its being ten o'clock at night it is one which I hope the Minister will gladly give in order to go home early. I beg to move.

10 p.m.

Lord Simon of Highbury

I believe that the ability to grant block and individual exemptions is an important aspect of the prohibition regime contained in Chapter I of this part of the Bill. Both businesses and consumers will benefit from these exemptions. They will allow agreements which have countervailing benefits as set out in the criteria in Clause 9 to continue even where they have anti-competitive effects.

A decision to grant an exemption will be far from straightforward and will often involve the detailed consideration of the agreements and their economic effects. The ability to grant exemptions which impose requirements on parties to agreements will often be essential. It allows a necessary degree of flexibility when granting exemptions.

Our approach in this respect follows that under the Community prohibition contained in Article 85. The Bill provides for two kinds of requirements to be imposed, obligations and conditions. Where agreement reaches an obligation contained in individual or a block exemption the director must give notice in writing before taking action. In the case of an individual exemption he has a discretion as to whether there is a need to cancel the exemption, or whether it may be more appropriate to take other courses of action such as imposing an additional condition or obligation. Breach of a condition results in the automatic cancellation of that exemption with respect to that agreement with no need for the director to take further action.

The effect of these amendments would be to remove the distinction between conditions and obligations. Conditions would be treated in the same way as obligations currently are under the Bill. In each case, breach of these has the same effect as provided in the Bill.

Such a change would significantly weaken the flexibility which will be necessary when granting exemptions. At European level in granting exemptions the Commission has found it necessary to impose conditions as well as obligations.

There is a risk that if the director or Secretary of State is denied the ability to impose conditions the breach of which has the automatic effect of cancelling the exemption with respect to the agreement in question, he will be more cautious in granting exemptions. This would reduce the number of agreements which are able to benefit from block and individual exemptions under the prohibition.

Given that risk, I would urge my noble friend Lord Graham of Edmonton to withdraw these amendments at this stage.

Lord Graham of Edmonton

I am grateful to the Minister for being so frank. He has said that it is possible that people will misuse or abuse the exemptions and the risk that the recipients of exemptions may become cavalier. That is well understood and it is a possibility. I think the Government are really saying that they are not prepared to risk the possibility.

This may be a huge issue but I am not competent to argue it in detail. I am sure the Minister has good grounds both for the words in the Bill and his explanation, which I found compelling but not completely acceptable. I shall take away the words he has used and consult colleagues. It may be that they will come back to the matter at a later stage. In the meantime, I beg leave to withdraw the amendment and wish the Committee good night.

Amendment, by leave, withdrawn.

[Amendments Nos. 59 to 61 not moved.]

Clause 5 agreed to.

Clause 6 [Block exemptions]:

[Amendments Nos. 62 and 63 not moved.]

Clause 6 agreed to.

Clause 7 [Block exemptions: opposition]:

Lord Kingsland moved Amendment No. 64: Page 5, line 12, leave out from ("means") to end of line 14 and insert ("three months").

The noble Lord said: In moving this amendment perhaps I may also speak to Amendments Nos. 73 to 76, 81, 83 to 85, 87 and 93. The first set of amendments concerns block exemptions in Clause 7. The general intention of all the amendments is to reduce the element of uncertainty for the alleged offender.

Amendment No. 64 introduces a period of three months in place of the expression, such period as may be specified with a view to giving the Director sufficient time to consider whether to oppose under subsection (2)". That is a very open-ended expression and could leave the alleged offender in doubt for a long time.

Amendment No. 73 is to page 7, line 41 of the Bill. The Bill presently reads: On an application under this section, the Director may give the applicant guidance".

If the amendment were accepted the Bill would read: On an application under this section, the Director must promptly give the applicant guidance".

Amendment No. 74 substitutes the word "shall" for "may" on page 8, line 20. If agreed the Bill would read: On an application under this section, the Director shall make a decision".

Amendment No. 75 seeks to insert at the end of line 20, page 8, within a period of three months".

Amendment No. 76 seeks to insert at the end of Clause 14 (2) a new subsection (3): If no decision has been made under subsection (2) after a period of three months the Chapter I prohibition shall be deemed not to apply to the notified agreement".

I turn to Amendment No. 83. Clause 21 (2) states: On an application under this section, the Director may give the applicant guidance as to whether or not, in his view, the conduct is likely to infringe the Chapter II prohibition". Amendment No. 83 seeks to leave out "may" in page 11, line 20 and insert "shall".

Amendment No. 84 seeks to substitute "shall" for "may" in page 11, line 27 of Clause 22 (2).

Amendment No. 87 seeks to insert on page 11, line 31, at end: If no decision has been made under subsection (2) after a period of three months the Chapter II prohibition shall be deemed not to apply to the notified agreement".

Finally, Amendment No. 93 proposes, on page 55, line 3 of the Bill, to add the expression, An application for a decision shall be determined within a period of three months from the date of notification, and where no determination has been made within the three month period the conduct shall he deemed not to infringe the Chapter II prohibition". It has been the experience of the competition authorities in the European Community that it sometimes takes a very long time before a company knows where it stands under the competition rules. It seems to me that we could set a good example to the Community by not allowing our competition officials to fall into the same trap and leave our own companies in a period of long and unacceptable uncertainty. I beg to move.

Lord Haskel

We are certainly keen to ensure that the prohibition regime operates efficiently. We agree with the noble Lord that, however long time, delays are inadvisable. They are bad for business and the economy. I appreciate the noble Lord's concern to ensure that the director does not delay in making decisions. It is of course important that business and consumers are not kept waiting for long periods. As the noble Lord pointed out, that uncertainty would be counter-productive.

However, it would be dangerous to impose a time limit of three months on the director. For example, when determining notification for a decision he may have to conduct a complex and detailed investigation of the economic and legal issues. He will wish to seek representations of third parties as part of his consideration. The effect of these amendments is that where he is unable to come to such a decision within three months, the agreement or conduct in question would be deemed not to infringe the prohibitions. We do not wish the director to be forced to make rushed decisions.

The Bill already makes provision to ensure that there is no undue delay in decisions made by the director which are expected to be brought into force once the system has bedded down. Both Schedules 5 and 6 make provisions which allow persons aggrieved by the failure of the director to determine an application for a decision to apply to a court for directions to secure that the application is considered without further delay.

Furthermore, Clause 49 enables the director to make rules on procedural and other matters. Schedule 9 elaborates on the kind of rules that can be made. Members of the Committee will see that paragraph 2(c) of that schedule makes specific reference to the possibility of rules making provisions for applications, whether for guidance or decision, to be dealt with in accordance with a timetable. I am sure that Members of the Committee will understand that until the system has bedded down and we have an idea of the volume of applications that may be made, we believe that it would not be right to tie the director down to a fixed timetable.

Equally, if we were to remove the director's discretion to give guidance the new regime would be damaged. We should be clear that in some cases the issues may not be black or white. In particular, in the case of guidance the application will not be published and the director will have no opportunity to consider what views third parties might have on an agreement. Were they aware of it? It would be quite wrong to tie the director down by forcing him to give guidance.

However, I can quite see the business interest in guidance being given promptly. Clause 49 enables the director to make rules on procedural and other matters. Schedule 9 elaborates on the kinds of rules that can be made. Members of the Committee will see that paragraph 2(c) of the schedule makes specific reference to rules making provisions for applications whether for guidance or a decision. I would expect such rules to deal with those concerns. In the light of these remarks, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Kingsland

Is the Minister saying that in formulating the detailed rules that will apply to the procedure that the director general has to respect, specific time limits will be entertained?

10.15 p.m.

Lord Haskel

I am saying that at this stage we do not think it a good idea to tie the director general down but, once the system has been bedded down, we may consider the matter further.

Lord Kingsland

At the risk at this time of night of irritating the Committee, perhaps I may address just one more question to the Minister. As I understand it from what he has said, the intention is to look at the experience (presumably over a period of, say, one year after the system has come into operation) and, in the light of that, to consider specific time limits. I say that because leaving many of these matters open-ended will pose great difficulties for the industry which will not know where it stands with regard to the competition regime. I should like to hear the Minister say that he accepts the approach of fixed time limits as a matter of principle.

Lord Haskel

What I can say is that the Bill already makes provision to ensure that there is no undue delay in decisions taken by the director. I expect to bring that into force once the system has bedded down.

Lord Kingsland

I appreciate the fact that the Minister has responded so frequently on this. I shall reflect on his replies in the cold light of dawn—well, perhaps not quite dawn!—but, in the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 agreed to.

Clause 8 [Block exemptions: procedure]:

Lord Berkeley had given notice of his intention to move Amendment No. 65: Page 5, line 15, after ("Before") insert ("granting an exemption under section 4 or ").

The noble Lord said: On the basis of my noble friend's explanations of my previous two amendments, I do not propose to move this amendment.

[Amendment No. 65 not moved.]

Clause 8 agreed to.

Clause 9 [The criteria for individual and block exemptions]:

[Amendments Nos. 66 and 67 not moved.]

Clause 9 agreed to.

Clause 10 [Parallel exemptions]:

Lord Ezra moved Amendment No. 68: Page 6, line 13, at end insert— ("( ) An agreement is exempt from the Chapter I prohibition if the European Commission has granted a comfort letter clearing or exempting the agreement.").

The noble Lord said: In moving Amendment No. 68, I should like to speak also to Amendments Nos. 69 and 70. The purpose of these amendments is to ensure that where an agreement falls within the term of a European Union block exemption or has been granted an individual EU clearance (whether formally or informally) it should be regarded as valid under UK law and scrutiny of the same agreement by the UK authorities should be barred. That accords with the desired aims of consistency with the EU and of keeping the burdens on business to a minimum. The amendments would provide that informal comfort letters, which have been received from the European Commission in response to a notification, would be recognised as binding in the UK and that the DGFT will not be able to vary or cancel the terms of an EU exemption.

As noble Lords are probably aware, the vast majority of cases notified to Brussels do not receive a formal decision granting exemption but are dealt with by means of a comfort letter. In 1996, for example, out of 386 cases, 365 were dealt with informally by means of comfort letters and other forms of communication and only 21 by formal decision. If a firm has gone to the expense of submitting a notification to Brussels and then receives only a comfort letter, that should be regarded in the UK as equivalent to a formal notification.

Furthermore, we do not believe that the director should be able to change the terms of, or to cancel, an EU exemption by imposing stricter domestic law to the same agreement. We feel that that runs counter to the aim of consistency with the EU. If exemption decisions by the EU are considered inappropriate by the UK authorities, action should be taken to remedy that at EU level rather than causing confusion by subsequent conflicting domestic action. I beg to move.

Lord Haskel

I share the views of the noble Lord, Lord Ezra, on the need to seek consistency in the application of EC and UK prohibitions. This clause is designed to assist consistency. It provides automatic exemptions from Chapter I prohibition of agreements which are exempt from the EC prohibition of anti-competitive agreements or the EEA prohibition of anti-competitive agreements. This automatic exemption from Chapter I prohibition is referred to in the Bill as a parallel exemption. The parallel exemptions provided by Clause 10 are very wide ranging. Agreements that are not subject to the EC or EEA prohibition of anti-competitive agreements because they do not affect trade between the relevant member states, but which otherwise meet the conditions for an EC or EEA block exemption, are also to be parallel exempt from Chapter I prohibitions. Therefore, agreements with purely domestic effects can benefit from parallel exemptions.

I am sorry to go on at length at this late hour, but the noble Lord, Lord Ezra, has raised an important point. I turn to his Amendment No. 68. This would extend the principle of automatic parallel exemption to European Commission comfort letters which fall short of a formal EC exemption. Comfort letters will be relevant in the application of UK prohibitions. The Director of the European Commission will be applying a consistent prohibition test and therefore a European comfort letter will be of persuasive authority to the UK system. However, it would be dangerous to confer a blanket automatic exemption from the UK prohibition on agreements that had received comfort letters. For example, such letters may state that the agreement is not caught by Article 85 because there does not appear to be an effect on trade between member states, while leaving open the possibility that the agreement produces harmful anti-competitive effects within the UK.

Amendments Nos. 69 and 70 proposed by the noble Lord would deprive the director of the ability to tackle agreements that raised particular UK competition concerns. Of course, there might be particular circumstances in which the director should be able to take action against an agreement which was parallel exempt under the clause. Take, for example, an agreement which had purely domestic effects but was nevertheless parallel exempt because if it affected inter-state trade it would meet the conditions of an EC block exemption. Such an agreement might raise particular UK competition concerns, and the director would be able to impose conditions on its operation, perhaps an obligation to provide market update information. The parties might have had to provide such information to the Commission if their agreement had affected inter-state trade. The director should also retain the ultimate sanction of cancelling the exemption.

I also draw the attention of the noble Lord to subsection (5) which provides that the circumstances and manner in which the director may impose conditions in relation to, or cancel, a parallel exemption will be set out in the director's rules which will not come into effect until they have been approved by order made by the Secretary of State. These orders are the subject of annulment by resolution by either House.

In view of the late hour and my explanation, I hope that the noble Lord will withdraw his amendment.

Lord Ezra

Those are two persuasive arguments for me to do so, but I very much regret the response that I have received. I should like to study it with care. Since the bulk of the cases notified to Brussels are responded to by comfort letters, it is a hit hard for the UK authorities to say that they do not really count. That means that practically nothing that has been notified to Brussels will ever be regarded as having been dealt with. We must return to this and to the other points that the noble Lord has raised. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 69 and 70 not moved.]

Lord Simon of Highbury moved Amendment No. 71: Page 7, line 17, leave out subsection (12).

On Question, amendment agreed to.

Cause 10, as amended, agreed to.

Clause 11 agreed to.

Clause 12 [Requests for Director to examine agreements]:

[Amendment No. 72 not moved.]

Clause 12 agreed to.

Clause 13 [Notification for guidance]:

[Amendment No. 73 not moved.]

Clause 13 agreed to.

Clause 14 [Notification for a decision]:

[Amendments Nos. 74 to 76 not moved.]

Clause 14 agreed to.

Clause 15 [Effect of guidance]:

[Amendment No. 77 not moved.]

Clause 15 agreed to.

Clause 16 [Effect of a decision that the Chapter 1 prohibition is not infringed]:

[Amendment No. 78 not moved.]

Clause 16 agreed to.

Schedule 5 [Notification under Chapter 1: Procedure]:

Lord Fraser of Carmyllie moved Amendment No. 79: Page 52, leave out lines 24 to 27.

The noble and learned Lord said: With Amendments Nos. 79 and 80 are grouped Amendments Nos. 91 and 92. They are well grouped; they deal with an identical point. The amendments would remove the power of the director to convert unilaterally an application for guidance into an application for decision. It is a small but important point.

Companies must be able to make applications for guidance on a confidential basis. The ability to convert an application for guidance into a formal decision without the consent of the applicant could result in third parties becoming aware of confidential proposals, with the end result that companies would be less willing to seek guidance or assistance in cases of uncertainty. That would be contrary to what the Government wish to achieve by this scheme of guidance and subsequent applications for decision.

I invite the noble Lord to reflect on that. It seems to run contrary to what would be an appropriate basis for taking forward such applications. All we ask of the Government at this stage is some signal that they will reflect on that before we return to it on Report.

We have considerable respect for the detailed and courteous way in which the Government Front Bench has dealt with some extraordinarily complex matters today. I hope that they appreciate that we have attempted to approach this in a co-operative fashion and that before we return to these provisions on Report—either informally or otherwise—they will seek to identify those points on which we are keen to ensure that we receive proper responses. If I get that short response from the Government, I give a solemn and binding undertaking that I will seek leave to withdraw these amendments.

Lord Haskel

A solemn and binding undertaking, certainly to reflect upon the issue. I hope that at this stage of the proceedings the noble Lord will accept that we will reflect upon the issue, but of course we cannot accept the amendment.

Lord Fraser of Carmyllie

On that solemn and binding basis I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 80 and 81 not moved.]

Schedule 5 agreed to.

Clause 20 [Request for Director to consider conduct]:

Lord Lucas moved Amendment No. 82: Page II, line 11, after ("prohibition") insert (", or which may amount to a dominant position,").

The noble Lord said: I move Amendment No. 82 and speak to the two other amendments in this group at the same time. They have a simple purpose. It is right that an applicant should be able to ask the director for a decision after a guidance as to whether he is in a position which amounts to a dominant position. It is essential that if the director issues such guidance he has the power to issue it; otherwise, it is something that can be challenged and overturned. So it is essential that somewhere in the Bill he is shown to have the power to issue such guidance. I cannot find it. I hope that the Minister can point me to it. I beg to move.

Lord Haskel

I could point to Clause 18 which prohibits the use of a dominant market position, but not the holding of a dominant market position itself. There is nothing wrong in companies holding a dominant position. It is only natural for companies to try to increase their share of the market. That of course is what competition is all about.

Lord Lucas

But if a company wants to know whether it will be caught by the clause, it has to decide whether it is in a dominant market position. It may wish to seek guidance as to whether it is in a dominant market position. It would be especially difficult, for instance, to define what is the market and to be able to seek guidance as to whether it is looking at the market for vacuum cleaners or cleaning equipment as a whole. It is something that it would be reasonable to ask that the director give guidance on. So far as I can see in the Bill, he does not have the power to do it.

Lord Borrie

Perhaps I may intervene, just to say that I think that the noble Lord is asking for an academic question to be answered by an office which, even if it is resourced adequately, will have plenty of things to do. The prohibition applies only where the two conditions are satisfied: there is a dominant position and there is abuse. To enable people to ask whether one has a dominant position is to ask an academic question.

Lord Haskel

I thank my noble friend Lord Borrie for that. The director general is required under the Bill to issue guidelines as to how he intends to apply the prohibitions. Companies will be able to look to EC jurisprudence for guidance as to the principles which will be applied in assessing dominance. Some might put that as the ability to throw their weight around without worrying too much about the consequences, but business people usually have a fairly shrewd idea of the nature of their own markets and indeed the extent of their own market power. In view of that explanation, I would ask the noble Lord to withdraw the amendment.

Lord Lucas

I so do. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 20 agreed to.

Clause 21 [Notification for guidance]:

[Amendment No. 83 not moved.]

Clause 21 agreed to.

Clause 22 [Notification for a decision]:

[Amendments Nos. 84 to 87 not moved.]

Clause 22 agreed to.

Clause 23 [Effect of guidance]:

[Amendments Nos. 88 and 89 not moved.]

Clause 23 agreed to.

Clause 24 [Effect of a decision that the Chapter II prohibition is not infringed]:

[Amendment No. 90 not moved.]

Clause 24 agreed to.

Schedule 6 [Notification under Chapter II: Procedure]:

[Amendments Nos. 91 to 93 not moved.]

Schedule 6 agreed to.

House resumed.