§ (" . — (1) Subsection (2) applies if the Director proposes to make—
- (a) a decision that the Chapter I prohibition has been infringed; or
- (b) a decision that the Chapter II prohibition has been infringed.
§ (2) Before making a decision under this section, the Director must—
- (a) give not less than 28 days written notice to the person (or persons) likely to he affected by the proposed decision;
- (b) give that person (or those persons) a reasonable opportunity to make representations to him including, at the request of that person (or persons), oral representations; and
- (c) Take account of and comment upon any such representations when making his decision.").
§ The noble and learned Lord said: My Lords, I appreciate the desirability of putting together groups of amendments where there is a common theme. I congratulate the noble Lord on this grouping; he excelled himself and it is a volume to get through. However, I am not equal to the task and may indicate to the noble Lord that we will deal with Amendments Nos. 125 and 126 when we come to them in their appropriate place. Perhaps I can speak first to Amendment No. 116.
§ As the Minister will appreciate, Clause 30 would require those affected by a decision to be given notice of the opportunity to make representations before that decision is made. However, that requirement applies only where the decision relates to investigation conducted by the Director General of Fair Trading under the powers provided by Clause 25 of the Bill and the DGFT is not placed under an express obligation to take account of any representations made to him.
§ The new clause would change the procedure which the DGFT or the regulator must follow before making a decision that a Chapter I or Chapter II prohibition has been infringed. It would extend the obligation to give notice in any case where the DGFT or the regulator proposes to make a decision that the Chapter I or II prohibition has been infringed and would ensure that the obligation is undertaken properly by requiring him to take account of any representations made.
§ It would seem to us that that would be in accordance with the rules of natural justice—ensuring that decisions were made on a properly informed basis with due regard being paid to the views of any person affected by them and ensuring that such persons have the right to be heard and make representations, similar to that enjoyed before 344 a court, in all cases where it is proposed to make decisions affecting them. The need for the DGFT to take account of or comment upon any representations received would, in our view, assist the tribunal in the hearing of any subsequent appeal on the decision that has been made.
§ Perhaps I may turn to Amendments Nos. 117 to 120, which are amendments to Clause 31. Clause 31 gives the director general the power to make directions in respect of infringement of a Chapter I prohibition. These amendments are designed to provide safeguards in relation to the exercise of the powers given to him under that clause. As presently drafted, subsection (1) allows the director general to give a direction to any person he considers appropriate for the purpose of bringing the infringement of the Chapter I prohibition to an end. That would include innocent third parties.
§ The first amendment we tabled would limit the sweeping power given to the director general so that such directions may be given only to those party to the relevant agreement. The clause provides for any such direction to include a requirement to modify or terminate the relevant agreement, but does not provide for modification in the sense of severing the offending provisions but leaving the remainder of the agreement intact. We had some discussion on the principles of severance on the first day of the Report stage but I shall be interested to hear what the noble Lord has to say about that in this context. The power to give directions is not subject to any requirements to give notice to the persons affected before the direction is made. This prevents those affected from making representations on the need for fairness of the direction and the manner in which it will be implemented.
§ The third amendment in the group would require the director general to give such notice and to receive and to take account of any representations made. As it is currently drafted, the clause does not make it clear whether directions will come into effect before any right of appeal has been exercised. The fourth amendment, Amendment No. 124, would stay the effect of the direction until the time for making an appeal has expired and until an appeal had been determined or withdrawn or the person concerned had confirmed that no appeal was to be made. I think I have spoken sufficiently to the amendments. I beg to move.
§ 5.30 p.m.
§ Lord Kingsland
My Lords, I wish to speak to Amendments Nos. 125 and 126. Clause 33 enables the Director General of Fair Trading or a regulator to apply to the court for an order to enforce a direction to end an infringement of the Chapter I and Chapter II prohibitions given under Clauses 31 or 32 where the undertaking to which that direction is addressed has failed to comply with its terms. In addition to imposing a liability on undertakings to comply with such a court order or risk being in contempt for failing to do so, and to meet the costs of the application for that order, Clause 33 also provides for the order and liability for costs to be directed at the officers of the undertaking personally.
345 The competition law of the European Community is concerned with and directed at undertakings. It does not confuse public and private law issues and therefore does not provide for personal liability of this kind on the part of officers of an undertaking. These amendments would ensure that UK competition law is in line with the corresponding EC law, one of the Government's stated aims in relation to the Bill, by removing the provision which would impose personal liability on the officers of an undertaking.
§ Lord Elton
My Lords, I have to confess that I am here for nostalgic reasons. In 1984 I was in the position of the noble Lord, Lord Simon of Highbury, and taking the first Data Protection Bill through the House. I am very much aware of the difficulty of balancing the need to he absolutely fair to the person who is subject to the regulation and the need to be certain that that fairness does not diminish the protection given to the person being protected. I intervene merely to say that, if the noble Lord intends to resist the first amendments in the group, I hope it will only be on the grounds that it would expose those who are supposed to be protected to unnecessary risk. But otherwise the balance must be in favour of the person who will be in receipt of the broken door, to which reference was made on the previous amendment.
§ Lord Simon of Highbury
My Lords, I thank noble Lords for their consideration in accepting a large grouping. I shall try to do justice to the sequence of amendments that have been tabled. I shall therefore speak, first, to Amendment No. 116. I am grateful to the noble and learned Lord. Lord Fraser, for drawing to the attention of the House the great importance of procedural safeguards before and indeed after decisions are made by the director. Indeed, the noble Lord, Lord Elton. said that we must try to ensure that we stray neither too far from or too close to the lines of "unbalancing" judgment.
I agree that the procedural safeguards are important and need to he clearly spelt out. Where I differ from noble Lords opposite is in how this result can best be achieved. We have given careful thought to the structure of the Bill. The Bill itself provides the basic framework for the safeguards. Clause 30 provides that, before making a decision on his own initiative following an investigation, the director must give written notice to parties likely to be affected by the proposed decision and allow those parties to make representations. It is right that such safeguards should be made clear on the face of the Bill. That is the balance we require in the case of own initiative decisions of the director.
The Bill itself does not specify how these basic safeguards are to apply in detail. That is a matter where flexibility in primary legislation is desirable. Accordingly, the Bill provides for procedural matters to be prescribed in rules set under Clause 49 and subject to parliamentary scrutiny. I therefore regard questions such as the length of the notice period to be more suitably dealt with in rules and not on the face of the Bill.
346 The same is true of the procedures for allowing representation, including whether there should be opportunity for oral representation. I therefore see no need to make explicit provision for the director to take account of representations. It is implicit in the existing provision in Clause 30 that the director must take account of the representations he receives in making his decision. Nor do I see a need for an explicit provision requiring him to comment on such representations, given that the director will be producing reasoned decisions.
As for decisions made pursuant to notification, the director general will clearly have the arguments of the parties before him in the shape of the notification. Once again, we have expressly provided in Schedules 5 and 6 for the director to follow the procedures as laid down in Clause 49. The detail of this procedure will be set out in the director's rules under Clause 49. We expect that a first draft of the rules will be available in the spring. Once again, such rules will be subject to parliamentary scrutiny. It would be wrong for the detail to be enshrined on the face of the Bill in what we consider to be an inflexible form. Therefore, I shall invite the noble and learned Lord, Lord Fraser, to withdraw the amendment when I reach the end of this rather lengthy response.
I now turn to Amendments Nos. 117 and 121. They seek to limit the range of persons to whom the director may give directions for the purpose of bringing the infringement to an end. At present, Clauses 31 and 32 are widely drawn, and intentionally so. They include such persons or such person as he considers appropriate to bring the infringement to an end. This will include both individuals—natural persons—and bodies corporate. The noble and learned Lord's amendment seeks to limit this, in the case of a Chapter I infringement, to a party to that agreement, and, in respect of a Chapter II infringement, to the person or persons whose conduct infringes that prohibition.
On the face of it that might appear reasonable. However, there is a strong possibility that the undertakings involved in infringements will be part of, or even the whole of, a very complex corporate group structure. The company which is directly a party to an infringing agreement or which is apparently responsible for infringing conduct may not be the actual instigator of that infringement. It may be a subsidiary that is directly involved in this way, but the infringement may well have been brought by the ultimate parent company or other prominent entities within the complicated group structure. As has been stressed before in the context of the investigation and enforcement regime under this Bill, the director must have the ability to get at the real culprit.
I turn now to Amendments Nos. 118 and 122. These would limit the powers of the director to require the termination of an infringing agreement or of infringing conduct. As currently drafted, he would be empowered under Clauses 31 and 32 to require by directions the relevant agreement or conduct to be amended or to be terminated. The noble Lords' amendment would make the power to require termination of the agreement or the conduct to be conditional upon there having been a prior 347 attempt by means of similar directions to modify the relevant agreement or conduct so as to bring the infringement to an end. This is unnecessary and undesirable. There will be cases where modifying the agreement or conduct is not sufficient and termination is the only proper remedy. The director should have the power to terminate the agreement or conduct in this way.
Amendments Nos. 119 and 123 seek to add new safeguards before the giving of directions under Clauses 31 and 32. Such new procedure would involve the director, where he had decided that there was an infringement of either of the prohibitions and intended to issue directions, to go through the process of giving written notice of the proposed direction to the person concerned, affording him the opportunity to make representations and to take any such representations into account. Effectively the director would have to repeat the same process he had possibly only just gone through and which he is required to do by Clause 30 before making the decision that there had been an infringement. Again, such duplication would serve no useful purpose and would simply delay the remedial action. I believe that it is right in these circumstances for the safeguards to be prescribed in the director's rules under Clause 49. Schedule 9 explicitly refers to the fact that rules may cover the procedure to be followed when the director takes enforcement action.
Amendments Nos. 120 and 124 in our view are also undesirable. Clause 45 of the Bill provides for appeals to the competition commission against decisions made by the director, and this includes directions made under Clauses 31 and 32 to bring infringements of either of the prohibitions to an end. These amendments would prevent such directions from taking effect until the period of notice of appeal had expired or until any such appeal had been dealt with, except where the persons concerned gave written notice to the director that they did not intend to appeal. One of our concerns about the enforcement of these prohibitions has been to ensure that infringing agreements or conduct are brought to an end as swiftly as possible to minimise the damage they cause. The requirements proposed here would inevitably involve delay and because of this we have made it clear in Clause 45 that, as far as is relevant here, the making of an appeal will not suspend the effect of the direction. We recognise the need for safeguards, however. Schedule 8 to the Bill, in providing further for the appeal process, allows a tribunal to make an interim order and such an order can suspend the effect of a direction. We consider that providing for such suspension on the merits of the case is preferable to deferring the operation of directions almost automatically and across the board, which would be the effect of these amendments.
Finally, I turn to Amendments Nos. 125 and 126, as spoken to by the noble Lord, Lord Kingsland. They seek to ensure that responsible officers of undertakings are not made the subject of orders requiring the remedying of failures to comply with directions. The circumstances contemplated here are that the director has decided that there has been an infringement of one of the 348 prohibitions. He has given directions which involve the officers of an undertaking taking some managerial or administrative action which they have failed, without any reasonable excuse, to do. This provision enables a court to compel the officers to take that action. If there is no power to achieve this end, then the direction will not be complied with and the infringement may go on unchecked. In these circumstances we consider it right that such officers who are wilfully in default may be liable for the costs of obtaining such an order.
I am grateful to noble Lords for their patience while I responded extensively to a number of clauses. I am satisfied that procedural safeguards are adequately provided for in the Bill as it is drafted. Amendments in this group also limit the powers of the director general to take enforcement action and weaken the Bill's effectiveness against anti-competitive conduct, when we know it is having a very stark effect on the competition circumstances that are being investigated.
In response to the point made by the noble Lord. Lord Elton, we have tried to achieve balance between what should be on the face of the Bill and what should be in the guidelines and whatever written directions are given by the director general. Therefore, I am sure that it will come as no great surprise to learn that I ask both the noble and learned Lord, Lord Fraser, and the noble Lord, Lord Kingsland, whether they are prepared to withdraw their amendments.
§ 5.45 p.m.
§ Lord Fraser of Carmyllie
My Lords, as regards the Minister's response to Amendment No. 116, he wholly persuades me. I agree that, on reflection and having listened to what he had to say, the course the Minister has suggested for these procedural matters is a more appropriate one. It may be some small comfort to him. and certainly to his officials, to know that I shall not be returning to the matter at Third Reading.
I am also grateful to the noble Lord for expressing more clearly than I did that Amendments Nos. 117 to 124 are parallel amendments to Clauses 31 and 32. I believe that at one point I inadvertently slipped from one clause to the other. I would like to read what the Minister said as regards the first of the three amendments. I am grateful to him for his full response. But perhaps I may indicate to him that as regards Amendments Nos. 120 and 124, I do not propose to consider them again at the final stage. I very much agree with the argument that the noble Lord has advanced, that given the power to suspend that is to be found in Schedule 8, paragraph 2, that is a more appropriate way to deal with a case where there is a desire to see the decision suspended while an appeal is being heard. With that exposition, and again with my thanks to the Minister, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 31 [Directions in relation to agreements]:
§ [Amendment No. 117 not moved.]349
Lord Fraser of Carmyllie moved Amendment No. 117A:
Page 16, line 15, leave out ("he considers appropriate") and insert ("are requisite").
The noble and learned Lord said: My Lords, this is a small and short amendment but in our view it is not without its importance. The clause, as currently drafted, provides for the director to give,
such directions as he considers appropriate",
to end an infringement of a Chapter I prohibition. We are concerned that that power is too widely drawn and might permit directions to be given which extend beyond the action needed to bring an infringement to an end. The proposal that we offer is that the phrase as "he considers appropriate" should be replaced by the phrase "are requisite". That would in some measure limit the power to give directions which are no more than is necessary or required in the circumstances to end the infringement.
§ We have adopted that approach because in our view such a change would ensure that the remedy is proportionate to, and is thus consistent with, EC jurisprudence, as is set out in Clause 58 and of which so much mention has been made. It would also conform to the notion of severability—that only those provisions or features of an agreement or practice which violate Article 85(1) are void. That would be in line with decisions of the European Court of Justice. I beg to move.
§ Lord Simon of Highbury
My Lords, I do not believe there is anything to be gained by seeking to amend this test. The director will have considered the case carefully and reached a decision. He is very well placed to make a judgment as to what directions are appropriate to bring the infringement to an end. We would not expect the director to give directions which exceed what is necessary to bring an infringement to an end. If we are not to place some faith in his judgment, we should not be proposing to give him the powers which the Bill proposes to give to him. As it is, the giving of a direction under Clause 31 is, of course, an appealable decision under Clause 45. I do not see the necessity to tighten the wording in this instance and I trust that the noble and learned Lord will not be pressing this amendment.
§ Lord Fraser of Carmyllie
No, my Lords, I certainly shall not be pressing the amendment, although it might have been valuable for the Government to accept it. Where the director general has a number of routes to bring an infringement to an end, provisions worded as we have suggested might focus his mind more clearly on the duty incumbent upon him to do so but not in any way that would be unduly onerous for the infringing party. Having expressed that continuing misgiving, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 118 to 120 not moved.]350
§ Lord Fraser of Carmyllie moved Amendment No. 120A:
§ Page 16, line 22, at end insert—
§ ("() In circumstances where the Director is entitled to exercise functions both under the Fair Trading Act 1973 ("the 1973 Act") and under this Part, he shall exercise his functions under the 1973 Act and not under this Part if it appears to him that any enforcement action which may need to be taken includes the imposition of a structural remedy.
§ () In this section "structural remedy" means an order made in accordance with Part 11 of Schedule 3 to the 1973 Act.").
§ The noble and learned Lord said: My Lords, the Government have indicated that the provisions of the Fair Trading Act 1973 relating to scale monopolies are not to be repealed in order to retain flexibility in dealing with structural factors which inhibit competition and because they are necessary to allow for the imposition of structural remedies, reorganisation and divestment. It is claimed that adequate powers to deal with such monopolies will not be conferred by this Bill.
§ The amendment would require the relevant powers under the Fair Trading Act to be exercised, and not those conferred by the Bill, in relation to any case where a structural remedy may be required. That is to avoid the prospect of action being taken under the powers provided by the Bill and then separate procedures under the 1973 Act being commenced after the need for a structural remedy has been identified.
§ During the first day of Report stage, the noble Lord, Lord Simon, indicated that an exemption from the Chapter I prohibition would not be granted if it would exempt something that appears to infringe a Chapter II prohibition. He said that at col. 956 of Hansard. We were grateful to him for that because it clearly identified the relationship between the two prohibitions.
§ However, in contrast, the interaction of the powers under the Bill and those in the 1973 Act are not totally clear. The amendment seeks to ensure that the powers in the 1973 Act to provide a structural remedy are exercised in a manner which avoids any confusion between the two regimes. Throughout the passage of the Bill, the Minister has sought to emphasise the desirability, as he sees it, of there being no risk of such confusion. Even if the noble Lord is not prepared to accept the amendment, I hope that, as he did with regard to the interrelationship between the prohibitions under Chapter I and Chapter II, he will take this opportunity to clarify the position. I beg to move.
§ Lord Simon of Highbury
My Lords, I am full of admiration for the noble and learned Lord's ingenuity in responding to my arguments about the scale monopoly provisions during last week's debate. Let me make one thing clear, I hope, from the outset. It is not the Government's intention that the prohibitions and the Fair Trading Act monopoly provisions should be used in parallel on the same matters. There is no question of such double jeopardy. The prohibitions will be the primary weapons against anti-competitive behaviour in the future. If the director suspects that there has been an infringement of the prohibitions, we would expect him to investigate the matter in relation to the prohibitions and not to make a reference under the monopoly 351 provisions. I would expect the Secretary of State to veto a monopoly reference in relation to matters that were the subject of current proceedings under the prohibitions; nor would I expect the director to wish to make such a reference.
There may, however, be circumstances where the prohibitions are not the appropriate means of dealing with competition issues. As we have debated before, the Fair Trading Act complex monopoly provisions may enable the authorities to deal with problems that fall outside the Chapter I and Chapter II prohibitions, particularly where there is parallel behaviour by companies in a market but no actual agreement. In these circumstances the prohibitions would not apply, but the director would have the option of a monopoly investigation if he felt that there were effects adverse to the public interest.
The position in relation to the scale monopoly provisions is rather different. I explained the Government's policy on the use of these powers in Committee (at col. 300 of Hansard). We believe that these powers should be used in the future only in circumstances where there has already been proven abuse under the prohibitions and where the director believes that there is a real prospect of further abuses by the same firm. In these circumstances, as the noble and learned Lord recognised, the more flexible powers to impose structural remedies available under the scale monopoly provisions may be the only effective means of preventing further abuses. I should at this point remind the House that, as I said in Committee, the use of the scale monopoly provisions as regards the regulated utility sectors is being considered separately under the utility review.
It seems to me that the policy I have described is a more significant and, if I may say so, a clearer way to focus the use of the scale monopoly powers than that proposed in the amendment. The amendment would require the director to second-guess the findings that the MMC would come to following its investigation of a reference. It would require the director to second-guess the view that the Secretary of State would take in the light of those findings. It is, of course, quite rightly the responsibility of the Secretary of State, subject to parliamentary control, to decide on the application of the wider powers available under the Fair Trading Act. It would not be right for the director to indicate whether structural remedies were needed.
There is one further important point I wish to make. The amendment seems to suggest that if there is a possibility that structural remedies would be appropriate, these should be tried first. I suspect that this is not actually the noble and learned Lord's view, but it would seem to be the consequence of the amendment. It is our view that the penalties and directions available under the prohibitions will be effective remedies in the vast majority of cases. Wider structural remedies would be contemplated only in circumstances where this does not prove to be the case.
That is the Government's position as established in the Bill and in their policy statements. The amendment however perceptively drafted cuts across that position 352 and would have the highly undesirable consequences that I have mentioned. I suspect that those consequences are ones that the noble and learned Lord would not himself have intended. I hope that my answer clarifies the Government's intention in their last statement. I therefore urge the noble and learned Lord to withdraw his amendment.
§ 6 p.m.
§ Lord Fraser of Carmyllie
My Lords, this is a probing amendment. I would have been astonished had the noble Lord indicated that it would be accepted. The noble Lord is aware that we would prefer the provisions relating to scale monopoly to be repealed altogether. That remains our position. We still harbour a faint hope that the Government may yet come round to the view that they are unnecessary. If they are to be retained I take it from the Minister's answer that he accepts there should be as little confusion as possible.
I was grateful to the Minister for setting out how he expected the director general to approach these matters. I should like to reflect further on how it would be possible to allow for the retention of a structural remedy (to put it in that shorthand form) without having to subject undertakings to the risks that they would first have to be tapped in this way and a further change made under the Fair Trading Act 1973. That seems to me to be unnecessarily cumbersome. However, I am grateful to the Minister for what he has said. I shall reflect upon it. In the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ Clause 32 [Directions in relation to conduct]:
§ [Amendments Nos. 121 to 124 not moved.]
§ Clause 33 [Enforcement of directions]:
§ [Amendments Nos. 125 and 126 not moved.]
The Deputy Speaker (Lord Allenby of Megiddo)
My Lords, before calling Amendment No. 127, I should draw to your Lordships' attention that if this amendment should be agreed to, I cannot call Amendments Nos. 127A to 130A inclusive.
§ Clause 34 [Interim measures]:
§ Lord Ezra moved Amendment No. 127:
§ Page 17, line 7, leave out subsections (1) and (2) and insert—
§ ("(1) This section applies if—
- (a) the Director has reasonable grounds for belief that the Chapter I or the Chapter II prohibition has been infringed but has not completed his investigation into the matter, and
- (b) it is necessary for the Director to act under this section as a matter of urgency—
- (i) on a complaint made in relation to the agreement or conduct under investigation, for the purpose of preventing serious, irreparable damage specified in the complaint to the complainant or a category of persons which includes the complainant, or
- (ii) for the purpose of preventing intolerable damage to the public interest,
§ (2) The Director may give such directions as are necessary for the purpose of preventing any occurrence of the damage referred to in subsection (1)(b)(i) or (ii) in the period between the giving of the directions and the date when he is reasonably able to complete that investigation.
§ (2A) The Director shall not take action under this section where subsection (1)(b)(i) applies unless he has first considered whether—
- (a) the person (or persons) to whom he proposes to give the direction would be likely to suffer serious irreparable damage if the direction is given and his investigation subsequently establishes that the Chapter I or the Chapter II prohibition has not been infringed and, if so, whether he is satisfied that on balance it is still appropriate to give the direction, and
- (b) the complainant should he required to provide, in a form specified by the Director, adequate security to the person (or persons) to whom the Director proposes to give the direction for any costs incurred or damage suffered by that person if the direction is given and his investigation subsequently establishes that the Chapter I or the Chapter II prohibition has not been infringed.").
§ The noble Lord said: My Lords, we come to the important subject of interim measures under Clause 34. Quite rightly, the clause allows the director general or the sector regulator to issue interim measures which prevent potential abuse while an issue is being investigated. That is not something to which we can object. However, what is a matter of concern is that the clause does not include any checks or balances as incorporated in European law to ensure that these measures are implemented only in exceptional circumstances. In EU law a prima facie case must be established before interim measures are imposed. I refer to Article 83(2) of the Rules of Procedure of the Court of Justice, as supported by European case law.
§ At present Clause 34(1) allows the director general or sector regulator subjectively to impose such measures merely if he has a reasonable suspicion that Chapter I or Chapter II prohibitions have been infringed. Subsection (1)(a) of the amendment seeks to introduce objectivity comparable with EU law by requiring the director general or the sector regulator to have reasonable grounds for belief before interim measures are imposed. Certainly, interim measures should not exceed what is necessary in the particular situation. The director should be required to weigh the interests of the company alleged to be infringing before deciding whether to grant interim measures; that is, to undertake a balance of convenience test. In addition, in line with EU case law—for example, National Carbonising Co. v. Commission—it must be considered whether the complainant should be required to give a cross-undertaking in damages or a bond guarantee. For all these reasons, I ask the Government seriously to consider Amendment No. 127. I beg to move.
§ Lord Kingsland
My Lords, the Opposition also have a number of amendments along these lines, including Amendments Nos. 128, 129, 129A, 130, 130A, 130B, 133A and 133B. Those amendments very much follow the amendment just moved by the noble Lord. Lord Ezra. The European Commission has powers to impose interim measures but the circumstances in which they can be exercised have been strictly constrained by the European Court of Justice. Our amendments seek to introduce into the Bill the same 354 kind of criteria as British courts have developed in interim injunctions. I believe that the language follows quite carefully our own case law.
The only amendments to which I draw particular attention are those on page 17, in line 17, which seek to replace "the public interest" with "competition" and to place before it "preventing serious and irreparable damage to." We were particularly struck by the enormous breadth of the power given to the director general in Clause 32(2)(b) to protect the public interest in circumstances in which presumably he is the only person who determines what is the public interest. That appears to us to be unnecessarily wide. If one accepts that there must be a set of rules in the Bill that narrows the circumstances in which interim measures can be applied by the director general, one must also accept that the expression "public interest" requires very careful examination before it is allowed to become law.
§ Lord Mishcon
My Lords, I follow the comments of the noble Lord with an apology to the House if I introduce a minor point into a matter of obvious major principle. The noble Lord who has just sat down referred to "public interest" as important wording that might create a degree of doubt as to whether it was a truly objective test. The noble Lord, Lord Ezra, was extremely keen in making clear to the House that objectivity was very much in this mind when he moved his own amendment which he said followed European law. I was somewhat aghast when I read the wording of the amendment so eloquently moved by the noble Lord, Lord Ezra. In paragraph (b)(ii) one reads:for the purpose of preventing intolerable damage to the public interest".I pray that this will never be copied in any Act of Parliament passed by this House or the other place. I draw it to the attention of the noble Lord because to think in terms of objectivity in the context of what should be tolerated and what should not is a little alarming.
§ Lord Simon of Highbury
My Lords, these amendments deal with the important area of the director's powers to take interim measures pending his final decision in a case. It would of course be a truism to say that in this area we need to balance adequate safeguards in respect of the exercise of the powers to order interim measures against enabling the director to act quickly to bring temporary relief to those affected by seriously anti-competitive agreements and behaviour so as to prevent irreparable damage or protect the public interest.
The amendment would shift the balance too far in the direction of making it too difficult for the director to act in cases where we believe that he should properly be able to do so. I recognise, as noble Lords have said, that in some respects their amendments reflect existing Commission law and practice in that area. But this is an area where we believe we can improve on the position at Community level. Interim measures have proved to be a difficult tool for the Commission to use. We are determined that they should provide a way of tackling anti-competitive behaviour quickly, before serious 355 damage has been inflicted, which has been a great failing of the current system. I am talking about our current system and the European system.
However, I believe that I will be able to offer noble Lords some comfort as to the extent to which the director is obliged under the existing clause to take into account the interests of a party who would suffer from interim measures.
I turn now to the specific issues raised by these amendments. Both the noble Lords, Lord Ezra and Lord Kingsland, seek to raise the threshold of "reasonable suspicion" that either prohibition has been infringed, to the significantly higher threshold of "reasonable grounds for belief. We have of course discussed those wordings in a number of different contexts.
The context here is that this is merely a preliminary threshold. The director must go on to satisfy further conditions before being able to impose interim measures. I do not believe the threshold of "reasonable grounds for believing" there to be an infringement is right where it provides simply the initial hurdle which must be cleared before the director can proceed to examine whether the further conditions for the exercise of the power are satisfied.
The three most important changes that would be made by Amendment No. 127 in the name of the noble Lord, Lord Ezra, would be to require the director: first, only to take action to prevent—and we have heard the views of my noble friend Lord Mishcon on the words—"intolerable damage to the public interest"; I take note of his experience in these matters; secondly, to take action on receipt of a complaint only and after considering the damage that would be inflicted on the recipient of the direction and balancing the pros and cons; and, thirdly, to consider whether the complainant should be required to provide adequate security for costs incurred and damage suffered should the director in the event conclude that a prohibition has not been infringed.
The first and last of those I recognise as, in essence, the position under Community law and practice. To the first, I must say that with regard to the effect on the public interest, though not required to be intolerable, as is the case under EC law, the matter must be one of urgency before he can act. With regard to the last of the three rubrics, I believe that in only one case in 1976 has the Commission required a bond to be given. In the case of abuse of a dominant position, interim measures would be required to protect small companies which are being damaged. Requiring them to provide a bond would remove a major advantage of asking the director to exercise those powers over their applying to the court for an injunction.
As regards the second point, although it does not appear on the face of the Bill, the director must obviously have some reason to act, which may be a complaint or the result of his own inquiries uncovering an agreement or behaviour that he suspects contravenes the prohibition. I have some sympathy for the point that any damage suffered by the subject of interim measures 356 should not be disproportionately greater than the damage which the complainant is likely to suffer if interim measures are not taken.
However, the director will be required to give notice to the undertaking to be the subject of the measures, and to consider its representations as to the effect the measures will have upon it.
The clause sets out the hurdles the director must clear before he gives directions. That is intended to ensure that he hears the views of the offender, so to speak, and does not act in a way which causes disproportionately greater harm to the offender than the victim.
The director must have a reasonable suspicion that infringement of prohibition has taken place, must consider it necessary for him to act as a matter of urgency for the purpose of preventing serious, irreparable damage to a person or category of person or the protection of the public interest, and the directions must be appropriate for the purpose. Action which causes disproportionately greater damage to one party is unlikely to be appropriate. Moreover, the director, in exercising his powers, would be subject to the principle of proportionality. Any action he takes should not exceed what is necessary to achieve the objective sought; that is to say, the prevention of serious, irreparable damage or the protection of the public interest.
Perhaps I could now turn briefly to a couple of other issues raised by this group of amendments.
Amendment No. 130A appears to be aimed at transferring the responsibility for deciding upon interim measures to, I presume, a tribunal of the competition commission. Certainly I agree that a tribunal has a role to play. We have provided that a decision to impose interim measures will be appealable to a tribunal of the competition commission. We have also provided, in paragraph 13 of Schedule 8, that the tribunal rules may make provision for a tribunal to suspend the effect of an interim measure imposed by the director before taking a final decision on whether the interim measure should be upheld. In those circumstances, I believe that it is right that the power to impose directions should remain with the director, subject to the safeguard of an appeal to a tribunal.
The noble and learned Lord, Lord Fraser, in his amendment, seeks to substitutepreventing serious and irreparable damage to competitionfor the public interest test. I think the broader test is preferable. Perhaps I could give one example why "competition" is too narrow. The Chapter II prohibition of the abuse of a dominant position goes wider than just competition. There is clear authority from its European counterpart, Article 86, that it prohibits excessively high prices. High prices are not in themselves anti-competitive—indeed, in so far as they encourage new entrants, they are pro-competitive. So the director would need to bear in mind the need to tackle exploitative behaviour as well as anti-competitive behaviour.
Finally, both the noble Lord, Lord Ezra, and the noble and learned Lord, Lord Fraser, have proposed that interim measures should be subject to a three-month limit. I understand the concern that an interim measures order should not remain in place for an undue period of time. 357 However, the three months' limit proposed in which to reach a final decision may not be sufficient where complex and detailed analysis of the economic and legal issues for the final decision is required. Nevertheless, as we said in Committee, we expect to bring into force, when the system has bedded down, the provision in paragraph 7 of Schedules 5 and 6, enabling an application to the court to ensure that there is no undue delay in determining applications for decisions. Behaviour subject to interim measures can of course be notified to take advantage of that procedure.
I hope that with that reflection on the balance that we are trying to achieve in interim powers between swift and effective action, which has not been the strength of our current law base or the Commission's in carrying out the implications of Articles 85 and 86, and the capacity of the tribunal to judge on those matters and the appropriateness of the action, the noble Lord will be able to withdraw his amendment.
§ Lord Ezra
My Lords, I thank the noble Lord, Lord Mishcon, for his important intervention and I take careful note of it. I also thank the noble Lord, Lord Simon, for his considered reply. He rightly identified the two reasons for the amendment. The first is to bring the clause more into line with European legislation and case law and the second is to avoid causing unreasonable damage to the enterprises concerned during the interim period. I shall take careful note of what he said and reflect upon it.
I am a little concerned about the considerable damage which could be caused to a firm if, after investigation, it were found that it had not infringed the rules. That could he the case. During the apparently unlimited period of the implementation of interim measures great damage could be caused to the firm. We must reflect on that matter between now and Third Reading but, in the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 127A and 127B not moved.]
Lord Kingsland had given notice of his intention to move Amendment No. 128:
Page 17, line 13, leave out ("considers") and insert (",having applied the same reasoning which a court would apply in determining an application for any interim measure, is satisfied").
§ The noble Lord said: My Lords, I listened with great interest to the Minister's reply on the question of interim measures. It is undesirable that the director should have the ability to apply interim measures on a more generous basis than our own courts. I shall read his comments in Hansard with interest and give notice that the Opposition might wish to return to the matter on Third Reading.
§ [Amendment No. 128 not moved.]
§ [Amendments Nos. 129 to 133A not moved.]
§ Clause 35 [Penalty for infringing Chapter I or Chapter II prohibition]:
§ Lord Fraser of Carmyllie moved Amendment No. 133B:
§ Page 17, line 38, at end insert—
§ ("() In determining whether to require an undertaking to pay him a penalty in respect of an infringement in accordance with 358 subsection (1) or (2), the Director shall have regard to the gravity and duration of that infringement.").
§ The noble and learned Lord said: My Lords, this group of amendments deals with the penalties which might be imposed. Amendment No. 133B would require the director to have regard to the gravity and duration of an infringement in deciding whether to impose such a penalty. The Minister might refer me to Clause 35(4), which in turn refers to Clause 39. Notwithstanding the arrangement in the Bill, we regard it as desirable that the director should be under the clear and express direction to have regard to the gravity and duration of an infringement.
§ As regards Amendment No. 134, we have considered the issue on at least one occasion. I am grateful to both Ministers for the further explanation that they have provided. It has gone a long way to allay some of the concerns which have been expressed to us. However, I have another concern on which I hope to secure a further degree of reassurance and possibly acceptance of the amendment.
§ Our contention is that the penalty of up to 10 per cent. of turnover should apply only to turnover in the relevant goods and services in the United Kingdom. If not, some large companies—it is not difficult to think of them—which may have several subsidiaries carrying on wholly unrelated activities independently of each other might be disproportionately penalised. The noble Lord, Lord Simon, stated that the penalty related to UK turnover. On 30th October, he referred to 10 per cent. of the turnover of the offending business. During Committee, the noble Lord, Lord Haskel, also made it clear that the provision related to UK turnover. We are not yet clear about whether the provision is restricted to turnover in the relevant goods and services. We have tabled the amendment to secure further clarification.
§ I am sure that the Minister will have noted that Amendments Nos. 135 and 135A are in part alternatives. We do not expect him to consider allowing both. Clause 37 requires the director to prepare and publish guidance on the appropriate levels of penalties to be imposed for infringement of Part I of the Bill. The amendment would widen the obligation imposed on the director and require guidance on the criteria to be applied in deciding whether to impose the penalty as well as the level of the penalty. In a different formulation, Amendment No. 135A seeks to achieve much the same end. In our view, it would be desirable that that is spelt out. It should be made clear that it refers not only to the amount of the penalty but whether the penalty should be imposed. I beg to move.
§ Lord Ezra
My Lords, I rise to speak to Amendment No. 134 and to support the noble and learned Lord. Clarification of the words "the relevant goods or services" is required. It is easy to think of companies operating in the UK. I was involved with a company making building materials. It dealt in a whole range of separate building materials operated by separate subsidiary companies. If one of those operations was suspect, in accordance with the competition rules it would be wrong that the whole of its turnover in 359 different activities, even if carried on in the UK, were to be penalised. It is an important issue which requires clarification.
§ Lord Monson
My Lords, other than as a small shareholder, I have no connection with any company large enough to be caught by the provisions of the Bill. However, I believe that the amendments are not only well thought out, but some or all are necessary in order to prevent the possible imposition of unjust penalties.
§ Lord Simon of Highbury
My Lords, I recognise that Amendments Nos. 133B and 135B derive from requirements placed upon the commission in respect of its fining policy. I am sure that in drawing up guidance under Clause 37 the director will have full regard to these matters. However, I believe that the question of policy on penalties is best left to guidance following detailed consultation with interested parties. We should preserve maximum flexibility. I believe that we may be able to improve on commission practice. For example, I believe that the OFT has an ambition to be more predictable in its fining policy than the commission.
As regards Amendment No. 134, an identical amendment was discussed in Committee by, I believe, the noble and learned Lord, Lord Fraser. However, since I find it difficult to distinguish between the perspicacity and good sense which I hear from members of the Opposition on many amendments, it may have been the noble Lord, Lord Kingsland. As my noble friend Lord Haskel—and he I do recognise—said on 17th November (at col. 425 of Hansard), it is the Government's intention that the turnover will be confined to that which arises in the UK. I hope that the noble and learned Lord and the noble Lord, Lord Ezra, will accept our words on that. I do not believe that that matter should be specified in primary legislation.
The question of confining the turnover to the relevant goods and services is something which merits further consideration. While I can see the argument, and there is also the point that such a limitation might discriminate in favour of large companies with many different divisions, the ECJ has said that in setting the amount of fines, regard must be had to a number of factors which include the volume and value of the goods in respect of which the infringement was committed.
In the Pioneer case the court said that the 10 per cent. limit was an upper limit to prevent fines being disproportionate to the size of the undertaking concerned. The Commission cannot be required to take account of only the turnover on the market where infringements occur.
Therefore, those are not easy matters but they are important. I believe that the department should consult on them with interested parties before drawing up the order. I recognise that that may not be an entirely satisfactory answer to your Lordships, given that the amount of any penalty which may be imposed is an important matter in which noble Lords will rightly wish to take an interest. However, for the very reason that the Bill provides that no order under Clause 35(7) is to be 360 made unless a draft of it has been laid before Parliament and approved by a resolution of each House, I believe that timely consideration can be given to the matter.
It is important to consult on that matter but I believe also that that important parliamentary safeguard will ensure that your Lordships are content with the results of our consultation.
On Amendment No. 135, I accept the noble and learned Lord's point that the director should issue guidance on the criteria to be applied in deciding whether to impose a penalty as well as on setting the appropriate amount of the penalty. I am assured by the OFT that the guidance under Clause 37 will cover that. No amendment is needed because the appropriate amount of any penalty would include cases where no penalty was appropriate. Therefore, with those assurances and my commitment to see the consultation truly take place, I hope that the noble and learned Lord will withdraw his amendment at this stage.
The Earl of Harrowby
My Lords, before the Minister sits down, I should say that I am a businessman like the Minister. I should like him to think again about mentioning on the face of the Bill the United Kingdom as part of the turnover as well as the separate subsidiaries. I should have thought that that was of significance to many companies. Like the noble Lord, I have been a chairman of companies which have subsidiaries all over the world, operating in different activities. Therefore, it is every bit as important to designate that the turnover referred to is United Kingdom or otherwise. It is not a matter which should be left to an understanding.
§ Lord Simon of Highbury
My Lords, I note the point made by the noble Earl, Lord Harrowby. However, what I have said is on the record and the matter falls better to the guidance which will be given in order to give ourselves the necessary flexibility within the statements that have already been made in the House on this matter as regards the way in which the director wishes to take that forward.
§ Lord Fraser of Carmyllie
My Lords, I am concerned about Amendment No. 134. We were told clearly by the Government in earlier discussions that there would be a restriction to the United Kingdom. I am rather concerned that the matter of the geographic confines is now something to which there is no reference in the Bill. I understood from what the Minister said that he has some sympathy for the point raised within Amendment No. 134 that it should he restricted to relevant goods or services. His reference to the European Court of Justice seemed to indicate that a similar restriction is contemplated by the court when such fines or penalties are imposed.
I invite the Minister to reflect further on that matter, especially if he has sympathy for the issue raised. It seems to me desirable to have that reference on the face of the Bill and I am sure that the noble Lord observed that there is sympathy for that view on all sides of the House. In the meantime, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 134 not moved.]
§ Clause 37 [The appropriate level of a penalty]:
§ [Amendments Nos. 135 and 135A not moved.]
§ Lord Simon of Highbury moved Amendment No. 135B:
§ Page 18, line 29, leave out from ("section") to end of line 31 and insert ("he must consult such persons as he considers appropriate.
§ () If the proposed guidance or alteration relates to a matter in respect of which a regulator exercises concurrent jurisdiction, those consulted must include that regulator.").
§ The noble Lord said: My Lords, in moving this amendment, I should like to speak also to Amendment No. 135C, 149E, I59B, 164A and 164B. All the amendments but one in the group are in response to points raised in Committee by the noble Lord, Lord Kingsland, on which I agreed to reflect. The noble Lord moved an amendment which would have required the Secretary of State to consult appropriate persons when preparing tribunal rules. Amendment No. 149E places such a requirement on the Secretary of State.
§ We have also tabled amendments placing a similar requirement on the director general to consult appropriate persons when preparing his rules (under Clause 49); guidelines on the appropriate level of the penalty (under Clause 37); and advice and information (under Clause 50).
§ Amendment No. 164B places a similar requirement on sectoral regulators to consult when they are preparing their own advice and information. In fact, I am pleased to report that the Director General of Fair Trading wrote to me on 6th February reporting considerable progress in preparing procedural rules and guidelines.
§ Working closely with the sector regulators, the director general has identified a list of areas to be covered in guidelines. He expects to publish the vast bulk of the guidelines series by September of this year. In doing so, he is working to ensure that the documents are business friendly and aimed at those likely to be affected by the provisions of the Bill rather than legal specialists, although I am sure both will understand them.
§ His letter also confirms that before issuing guidelines, the sector regulators and the director general expect to consult as widely as possible, including consumer bodies, local authority associations, and, of course, the business community and its advisers. I have placed copies of the director general's letter in the Library of the House.
§ Also included in this group is Amendment No. 135C. This is a technical amendment which puts right the definition of appropriate court in Clause 37 so as to include the House of Lords. This change is needed because the House of Lords will be the ultimate court to hear appeals on the level of penalty and so should also have regard to the guidance on the level of penalties issued by the director. I beg to move.
§ On Question, amendment agreed to.362
Lord Haskel moved Amendment No. 135C:
Page 19, line 3, at end insert—
("(d) the House of Lords.").
§ On Question, amendment agreed to.
§ Clause 39 [Limited immunity in relation to the Chapter II prohibition]:
§ Lord Teviot moved Amendment No. 136:
§ Page 20, line 3, at end insert—
§ ("() Immunity may not be granted under this section to a company which the Director considers has initiated an anti-competitive act.").
§ The noble Lord said: My Lords, as your Lordships know, Clause 35 deals with infringements of Chapter I and Chapter II prohibitions. It gives draconian powers to the Director General of Fair Trading. It also allows the director general to impose fines of up to 10 per cent. of turnover of the company or group concerned. Again, it gives limited immunity to small agreements in Clause 38, but rightly gives power to the director general to withdraw that immunity in certain circumstances; namely, in Clause 39, subsection (4).
§ At this stage I, as usual, declare an interest of which many of your Lordships will be aware. For a long time I have taken a special interest in the bus industry and it is the impact that this Bill will have on that industry which I wish to highlight. Some of your Lordships will be aware of the bus "wars" which were a feature of the industry in the late 1980s. Thankfully, those are now a thing of the past. However, the industry is still competitive, and occasionally the Director General of Fair Trading has to intervene. What is not always appreciated is that the anti-competitive actions can be initiated by large and small operators alike.
§ There is still an element of "cowboy" operations which can cause havoc on established routes and networks, to the disadvantage of passengers. At this point I must stress that the amendment is aimed solely at protecting the public's bus services, not the market position of the current service providers. However, to protect the passenger, we must protect the current service providers from anti-competitive behaviour. It therefore follows that the Government must ensure that any operator, irrespective of size, which flouts the rules is punished.
§ The established operator providing high quality services, backed up by sustained investment, which merely responds to the behaviour of the "cowboy" must not be penalised. If we are to ensure that passengers will receive the high quality services that they deserve, I believe that we must look closely into the effects that Clause 39, as currently written, will have.
§ I am aware that the main thrust of the clause is to reduce compliance costs on small businesses, something of which I, for one, am generally in favour. However, the Government have a responsibility, when bringing forward legislation, to underpin this aim to ensure that it does not merely place on the statute hook a law which gives small businesses immunity from fines and, in effect, carte blanche to attack their larger competitors in an anti-competitive fashion. I am sure that that is not the Government's intention, which is why I think that the clause needs closer examination.363
§ In conclusion, I should acknowledge again that there is a mechanism incorporated in the Bill which enables the Director General of Fair Trading to withdraw immunity from fines in certain circumstances. I hope, therefore, that the Minister will be able to accept the amendment or agree to propose an equivalent on Third Reading. If, however, he is not minded to do either, I hope that he will indicate tonight his support for the Director General of Fair Trading for the principle of the withdrawal of immunity from fines for any company perpetrating anti-competitive behaviour. I beg to move.
§ 6.45 p.m.
§ Lord Simon of Highbury
My Lords, I have a great deal of sympathy with the noble Lord, Lord Teviot. Coming from a large company background myself, it never escaped my notice that very small companies were able to perpetrate very considerable damage. I guess if they were setting their minds to very large abuses, they could also achieve that aim. Therefore, I fully understand the point of proportionality, if I may put it that way, that the noble Lord has put to me.
However, I do not believe that the modest protection conferred by the clause for what I shall, for convenience, call SMEs (small and medium-sized enterprises) should really give rise to the concerns which the noble Lord has expressed. As the noble Lord rightly said, the Government believe there ought to be some recognition of the compliance costs for small and medium-sized enterprises. We have therefore provided in Clauses 38 and 39 that parties to small agreements and persons whose conduct is of minor significance should be immune from penalties for breaches of the Chapter I and Chapter II prohibitions respectively.
Nevertheless, we wholly accept that SMEs may infringe the prohibitions including, as I hinted in my introduction, abusing dominant market positions. Small companies are absolutely capable of doing that. That is exactly why the clauses provide for the director to be able to withdraw the benefit of the immunity. Moreover, the full range of the investigation and enforcement powers, including the power to give directions with a view to bringing to an end the infringement of a prohibition, will be available to the director if he needs to use them.
Therefore, I doubt that the provisions will disadvantage competitors of small and medium-sized enterprises or the public in the way described by the noble Lord. The provisions are not in any sense a licence to SMEs to infringe the prohibitions and, in particular, to abuse a dominant position. Under those circumstances, the director has every power that he requires to act and would be able to withdraw the immunities. In view of those explanations, I hope that the noble Lord will feel able to withdraw the amendment.
§ Lord Teviot
My Lords, I am most grateful for the way in which the Minister responded to my amendment. I shall, of course, read most closely what he said in 364 Hansard tomorrow. At present, I do not envisage returning to the matter. I am indeed most grateful to the Minister. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
Lord Fraser of Carmyllie moved Amendment No. 136A:
After Clause 40, insert the following new clause—