COMMONS AMENDMENT (Hansard, 20 October 1998)

§ Lord McIntosh of Haringey
My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 23. I shall speak also to Amendments Nos. 24 and 25. This amendment responds to an amendment to Clause 37 tabled by the noble and learned Lord, Lord Fraser of Carmyllie, which would 1374 have required the director's guidance to cover the criteria to be used in deciding whether to impose a penalty. Concern was expressed that undertakings might be subject to a penalty, even though they might have acted anti-competitively without deliberate intent. I do not believe that penalties would be imposed by the director without very good reason.
However, the concern which the noble and learned Lord expressed is entirely proper and the Government indicated that an amendment might need to be made in another place. We had thought that this matter might well be covered by guidance under Clause 39, but on reflection it seems to us that the better course is to make it clear on the face of the Bill that penalties cannot be imposed unless the undertaking has committed the infringement intentionally or through negligence. This is what Amendment No. 23 achieves. I hope that it will be welcome to the House.
Turning to Amendments Nos. 24 and 25, Clause 39 of the Bill requires the director to prepare and publish guidance as to the appropriate level of a penalty which an undertaking may be required to pay where an agreement or conduct infringes either of the prohibitions. We have given the commitment that the ceiling of 10 per cent. of turnover will be limited to UK turnover. The purpose of Amendment No. 24 is to inform and guide business on the circumstances in which penalties are likely to be imposed and the magnitude of such penalties. Clause 39(8) underpins this by requiring the director to have regard to this guidance when setting the amount of a penalty. As at present drafted, the subsection also requires an appeal tribunal or court also to have regard to the director's guidance.
We believe that this latter provision could be argued to have limited the independence of the appeal process from the director. To put the matter beyond doubt, this amendment removes the obligation on a tribunal and the court to have regard to such guidance.
Amendment No. 25 is necessary as a consequential amendment to delete the cross-reference, in Clause 39(10) to subsection (8) of Clause 39, because this subsection will no longer refer to "the appropriate court".
Moved, That the House do agree with the Commons in their Amendment No. 23.—(Lord McIntosh of Haringey.)

§ Lord Borrie
My Lords, I wish to comment on Amendment No. 23, which may reduce the important deterrent effect of the penalties which the Government have much lauded as being among the purposes of the Competition Bill. As we have heard, it requires that the director may impose a penalty only if he is satisfied that the infringement of a prohibition has been committed intentionally or negligently by the undertaking. I stress the words "by the undertaking" because my concern is that that may mean only the directing mind of the company. I am concerned about what may happen if, for example, the management of an undertaking issues express instructions to employees not to put into effect a price-fixing agreement. Then let us suppose that a middle rank employee, if you like, acts against those instructions 1375 in the course of his employment because it is his job to make contracts. I am worried that because of the amendment the director may not be able to impose a penalty on the basis that the undertaking, or the directing mind of the undertaking, has not acted intentionally or negligently; indeed he has issued express instructions to try to ensure that does not happen.
I have not invented these facts out of thin air. I refer to an actual case that occurred in the earlier part of this decade when the House of Lords in its judicial capacity dealt with ready-mixed concrete companies which had been subjected to a court order many years before that they must not make price-fixing agreements. The court orders were, of course, directed at the companies concerned. The directors of a company issued instructions seeking to put into effect the court order and to try to ensure that everyone in the company obeyed it. Unfortunately the instructions were disobeyed and people of a certain rank within the company liaised with other people in other companies and made price-fixing contracts exactly of the kind that the Restrictive Practices Court had been concerned about.
The House of Lords overruled the Court of Appeal on this matter. The House of Lords said that even though the employees had acted outside their authority and contrary to instructions, as they acted in the course of their employment the contracts they had made were attributable to the companies and the companies were liable in contempt for breaching the court orders. In the judgments much was made of the fact that the companies were liable in contempt because the law of contempt does not require intention on the part of the employer. If the employer is supposed to be the one who has the intention or is negligent, would the director be able to impose penalties under the new wording in Amendment No. 23, which the House of Commons has passed and which we are now considering?

§ Lord Fraser of Carmyllie
My Lords, I leave it to the noble Lord to answer that series of complicated questions. For my part, I simply thank the Minister for introducing the amendment in another place. It certainly meets the concerns which we expressed in this House.

§ Lord McIntosh of Haringey
My Lords, I am grateful for the observations of the noble and learned Lord, Lord Fraser of Carmyllie. I am grateful to my noble friend Lord Borne for writing to us yesterday and giving us notice of his concerns. He is right to draw attention to the implications of this change to the Bill. When I started in business—far too long ago—we were taught that, if we signed a letter, it had to be "for and on behalf of the company. When I started my own business, in 1965, I was told by our legal advisers that that was no longer necessary because the law as it stood then meant that anything we wrote on the company's letterhead was tacitly "for and on behalf of" the company. It is not entirely clear to me whether the ready-mixed concrete case to which my noble friend referred overturns that position. As I understand what my noble friend said, the agreements that took place between the ready-mixed concrete companies were not necessarily in writing, so areas of doubt remain. However, I can assure the House 1376 that acceptance of Amendment No. 23 will not undermine the effectiveness of the new regime in deterring anti-competitive behaviour or tackling it vigorously when it does occur.
The amendment introduces an important new safeguard for undertakings, reflecting the concerns expressed in this House. Penalties cannot be applied unless the director is satisfied that the undertaking has infringed the prohibition intentionally or negligently. However, I must point out that this limitation is on the imposition of penalties, not on the application of the prohibition itself. If the director is satisfied that the prohibition has been infringed by an undertaking, then he will be able to take enforcement action under the Bill to bring that infringement to an end. Only if he is satisfied that the infringement is intentional or negligent will he he able to impose penalties.
The amendment is not a licence for cavalier behaviour—not that my noble friend suggested that it was. It is clear from the principles set out in the decision of your Lordships' House in the case of the Supply of Ready Mixed Concrete (No2) that an employee, acting for an undertaking within the scope of his employment, who makes a prohibited agreement will be doing so as the company. The company will therefore be in breach of the prohibition and be liable accordingly.
The test as to whether an infringement is "intentional or negligent" mirrors that in Regulation 17/62 under which the European Commission acts when imposing fines for breaches of Articles 85 and 86. The director, in applying the test, will therefore be bound to apply European Community jurisprudence in applying the test to the Bill. Clause 60, with its purpose clause, sets this out clearly. The director will have to identify the legal person who is responsible for operation of the undertaking which has breached the prohibition. That will usually mean the company carrying on the business in respect of which the breach has occurred.
In deciding whether the undertaking has acted intentionally or negligently, the director will have to consider the degree of culpability for the infringement. For example, in the case of Deutsche Phillips the company was held liable for negligent infringement for including in agreements an export ban in error after the parent company had ordered its removal. The Commission determined that the company had not taken sufficient care to remove the offending restriction from agreements. A compliance programme which is ineffective to prevent infringements may be a mitigating factor but will not relieve the company from the imposition of penalties.
I hope that what I have said reassures my noble friend to some extent.