HL Deb 18 July 2002 vol 637 cc1427-67

5.7 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville)

My Lords, I beg to move that the House do now again resolve itself into Committee on this Bill.

Moved, That the House do now again resolve itself into Committee.—(Lord Sainsbury of Turville.) On Question, Motion agreed to.

House in Committee accordingly.

[The DEPUTY CHAIRMAN OF COMMITTEES (Baroness Fookes) in the Chair.]

Lord Kingsland

moved Amendment No. 84: Before Clause 16, insert the following new clause — "APPEALABLE DECISIONS

In section 46(2) of the 1998 Act. there is inserted after paragraph (h)— (i) to issue a notice under section 26 requiring the production of specified documents or information; (j) to investigate premises without a warrant under section 27; (k) to investigate premises with a warrant under section 28: (1) not to investigate a complaint under Chapter I or II; (m) not to grant interim measures under section 35." The noble Lord said: This amendment concerns Section 46 of the Competition Act 1998. It seeks to insert some new paragraphs after paragraph (h). None of the measures stipulated in the amendment is capable of being appealed to the Competition Commission Appeal Tribunal which, as the Committee is aware, is to be re-named the Competition Appeal Tribunal under the Bill. Nevertheless, each of the additions has significant effects for the party concerned and can be challenged only by judicial review. The amendment is consistent with the Government's declared wish to have competition matters dealt with by bodies versed in competition law and practice. The decisions on the additions listed above should go to the CAT and not to the courts.

On the very day that the Bill was introduced in March 2002, an important decision was taken by the Competition Commission Appeal Tribunal in a case called Bettercare. The case concerned whether a complainant had a right to appeal against a rejection of a complaint by the OFT—a matter not listed in Section 46. The OFT argued that it had not taken a decision but had merely decided not to exercise its discretion to open proceedings on the grounds that the Competition Act did not apply to the party complained about. The party complained about was a local authority. The CAT nevertheless held that this was an appealable decision.

The situation now seems to be, therefore, that if the OFT rejects a complaint on substantive grounds its decision is appealable; but if it decides not to investigate on grounds of, say, lack of resources or lack of the importance of the subject matter, that would be challengeable in the High Court only by way of judicial review. That will plainly lead to confusion. It might not, in particular, be easy to determine what was the basis for rejection: indeed, the OFT might be encouraged to base all rejection letters on judicial review-type grounds which would not be conducive to good decision making or to transparency. Moreover, a complainant who brought his appeal in the "wrong" forum might find himself out of time because of the difference in limitation periods for the two procedures.

There is absolutely no reason whatever not to provide that all competition-related decisions, including rejection of complaints, should be reviewable by the CAT and not by the ordinary courts. I beg to move.

Lord McIntosh of Haringey

The amendment would add to the list of decisions by the Office of Fair Trading that could be appealed to the competition appeal tribunal under the Competition Act 1998. I think that the reference in the amendment should be to Section 46(3) and not to Section 46(2). But that is of no matter.

Section 46(3) of that Act lists a number of decisions taken by the Office of Fair Trading that can be the subject of a full appeal to the tribunal. Further decisions of the OFT may be added by regulations under Section 46(3), and, in the case of third party appeals, Section 47(1). With one exception, we do not propose to add any new category of appealable decisions.

The exception is the category covered by paragraph (m), which the amendment proposes to add. I agree with the noble Lord, Lord Kingsland, that decisions not to grant interim measures should be appealable under Section 46, or, as I think is more likely, by third parties under Section 47. We stated our intention to implement this change in the July White Paper. As the Minister said in another place, we will be bringing forward the relevant secondary legislation as soon as is practicable. But it is unnecessary to make the amendment on the face of the Bill.

Having said that, I am not minded to take action on the other proposals in the amendment. The list of appealable decisions in Section 46(3) consists of substantive decisions by the OFT requiring an analysis of the merits of the case, and with only one exception taken at the conclusion of a procedure or investigation. The sole exception is the current right to appeal against interim measures taken under Section 35, which we are prepared to extend by order to include decisions not to grant interim measures.

We do not think it appropriate or necessary to provide for a full right of appeal on any intermediate, investigatory step in the OFT's proceedings. Parties are not without an avenue—as the noble Lord, Lord Kingsland, has reminded us—of judicial redress in any of the circumstances stipulated in the amendment. The option of applying for judicial review in the High Court will always be available. In that case the court will have full powers to impose remedies such as injunctions.

The noble Lord, Lord Kingsland, referred to the Bettercare case. Section 42(3) is clear that decisions as to whether the Chapter I or Chapter II prohibitions have been infringed can be appealed to the competition appeal tribunal. That includes decisions that a prohibition has not been breached. The Bettercare case establishes that the Director-General of Fair Trading may have made a decision that the prohibition has not been infringed, even where the position has not been taken at the end of a full administrative procedure and is not formally entitled a decision. It is sufficient if the DGFT had in substance made the determination of the issue—for instance, in the course of correspondence with the complainant— rejecting a complaint.

This is a substantive decision. It can be appealed to the tribunal. I hope that deals with the concern expressed by the noble Lord, Lord Kingsland. It was always the intention behind Section 46(3). My noble friend Lord Simon of Highbury during the debate on the 1998 Competition Bill said that it was our intention that substantive decisions by the director should be appealable to the Competition Commission. With those two, I hope, convincing points, I hope that the amendment will not be pursued.

5.15 p.m.

Lord Kingsland

I am grateful to the noble Lord for his full reply. He will not be surprised to hear that I am disappointed by it. I shall certainly return to the matter on Report. He is quite right about the subsection designation. The amendment should have referred to Section 46(3). I apologise to the Committee for that.

The Bettercare case is a good example of the illustration I gave about the OFT being tempted to cast its decision in terms of reasons which fall within the judicial review, rather than the appeal category. I think in this case of paragraph (1) of my amendment.

Judicial review in competition cases is hardly a remedy at all. As the noble Lord is well aware—if for no other reason than because of his experience with the Financial Services Bill—it is not normal in judicial review cases for judges to permit either cross-examination or discovery of documents. In those circumstances, it would be extremely difficult for a complainant before a judge in the Administrative Court to get anywhere with judicial review proceedings in relation to that matter. For those reasons, I shall be returning to the matter on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 16 agreed to.

Lord Razzall

moved Amendment No. 85: After Clause 16, insert the following new clause— "TRIBUNAL: REGULATIONS

(1) The Lord Chancellor and the Secretary of State may together make regulations—

  1. (a) empowering the courts to transfer to the Tribunal for determination by it any issue arising in any civil proceedings the determination of which depends on whether provisions of Chapter I or II of the 1998 Act or of Article 81 or 82 of the Treaty have been infringed where, in the opinion of the court making the transfer, the transfer would be conducive to the efficient conduct of the proceedings;
  2. (b) making any rules that the Lord Chancellor and the Secretary of State may deem to be appropriate as ancillary to the power to make such transfers or to be reasonably required in connection therewith and in particular, but without prejudice to the generality of the foregoing, to the effect that—
  3. 1431
    1. (i) on making such a transfer, the court making the transfer may state facts that the Tribunal shall then treat as established for the purposes of determining the issues transferred to it;
    2. (ii) after having made its determination, the Tribunal shall remit the matter to the court that made the transfer to it, declaring the determination of that issue by the Tribunal, which, subject to any clarification or amplification by the Tribunal of its determination that may be requested by the court that made the transfer, shall then be treated as a determination of that issue by that court;
    3. (iii) enabling courts that have made, or have in contemplation the making of, such transfers and the Tribunal to co-operate together in any way that they deem to be appropriate to enable issues arising in the proceedings before them to be determined as efficiently as possible.
(2) The Lord Chancellor may appoint as President and as chairman of the Tribunal judges of any of the courts provided that, before appointing a judge of the Court of Session or sheriff courts under this subsection, the Lord Chancellor shall first consult the Lord President of the Court of Session. (3) In this section references to "the courts" are to the High Court of Justice and the county courts in England and Wales and Northern Ireland and the Court of Session and the sheriff courts in Scotland. (4) The power to make regulations under this section is exercisable by statutory instrument subject to annulment in pursuance of a resolution of either House of Parliament. The noble Lord said: Amendment No. 85 seeks to test the Government's intent on one or two quite complicated issues that relate to the functions of the competition appeal tribunal and the function of the courts. I am grateful for the representations that have been made to me in this respect by a number of practitioners in the competition law area.

The concern which the amendment seeks to remedy is that the Bill, if passed in its current form, would be in danger of getting the competition appeal tribunal to perform functions that it is not eminently qualified to deal with and getting the High Court to perform functions that it is not properly qualified to deal with. That is the substance of the amendment. It is designed to give the Government power to bring in regulations, on which there will need to be extensive consultations, to attempt to ensure that the right functions can be placed with the right bodies.

The background is that, for the first time, the Bill contemplates that where there are breaches of regulations and laws regarding competition legislation the power is given for private actions to be brought. We on these Benches certainly welcome that.

But the question is whether what was Clause 16 and is now Clause 17 appropriately assigns the power to make decisions on damages to the tribunal. In our judicial structure, the body that is eminently qualified to deal with questions of damages is the High Court. One of the underlying principles of the amendment is that the High Court, rather than the tribunal, should deal with damages.

Conversely, under the Bill, in many cases the competition appeal tribunal will not be assigned to deal with what it will be eminently qualified to deal: significant issues involving the interplay between the law and the economics of a case. High Court judges are not usually qualified to make such determinations. The amendment is intended to ensure that regulations can be introduced by the Government and that the competition appeal tribunal will deal with the matters with which it is eminently qualified to deal—complicated factual economic issues, for example, determining whether the exemptions in Article 81(3) apply.

Such issues have been increasingly determined in Europe, but because of the way in which European law is beginning to develop they will soon return to be matters to be determined by domestic tribunals or courts. Such issues should be determined by the tribunal. Conversely, the High Court is the appropriate place to determine issues of damages. That is the purpose of the amendment. I beg to move.

Lord Kingsland

I support the amendment. It is primarily due to the work of the distinguished competition lawyer Sir Jeremy Lever that the matter is before us today.

As the noble Lord, Lord Razzall, explained, for a variety of reasons, mainly connected with the content of the Bill and the likely move of the European Commission to delegate much of its competition decision-making to national authorities, the volume of competition cases in national courts will grow substantially. Essentially, the amendment implies that the Government have got matters the wrong way round in the Bill. The Government seek to concentrate responsibility in the new competition appeal tribunal for determining damages following decisions by the responsible competition authorities.

The philosophy behind the amendment is that measuring damages in competition cases is not an especially complicated matter for Queen's Bench judges. Given the huge volume of work that the competition appeal tribunal is about to undertake, why not relieve it of the task—or at least of the exclusive task—of doing something that can just as well be done by other courts?

On the other hand, the Bill as drafted will, in private actions, require ordinary High Court judges to deal with the most sophisticated and complex competition matters—those under Article 82(3), for example—which the CAT is uniquely qualified to consider and undertake.

The amendment is intended to provide a transfer mechanism in the opposite direction to that of the Bill. It is intended to provide the power to take cases that arise in the ordinary courts and transfer them to the competition appeal tribunal. In a sense, we are trying to change the flow. The Bill will send damages matters to the competition appeal tribunal; it should send competition matters to it.

The amendment has no political content. It is an attempt to assess where the burdens will lie on the judicial system when the Bill is enacted. It is in everyone's interest to get that right. The Government have taken a certain view in the Bill. I hope that they will give the amendment serious consideration, if they have not already done so, so that we can develop the idea during our proceedings.

Lord Razzall

For the record, I think that the noble Lord meant Article 81(3), not Article 82.

Lord Kingsland

Yes. I have got off to a bad start with my statutory designations; I apologise.

Lord McIntosh of Haringey

I do not think that we are worried about damn dots!

I listened carefully to what the noble Lords, Lord Razzall and Lord Kingsland, said. I certainly recognise that they feel strongly about this issue. I should like to consider their remarks between now and Report, but I must address myself to the amendment before us and point out the difficulties with it.

The amendment would achieve two things. It would enable the Lord Chancellor and the Secretary of State to make regulations enabling courts to transfer certain competition issues to be determined by the competition appeal tribunal. It would also, although this has not been spoken to, allow the Lord Chancellor to appoint judges directly to the positions of president and chairman of the tribunal.

Under the amendment, we should have the strange position whereby a tribunal made a decision on an issue arising in a case before a High Court judge that was then binding on that judge. It is true that, as a result of Clause 19, findings of infringements of competition law will be binding on the courts, but that will be only when the full appeal route has been exhausted and only in relation to claims for damages. So that is narrowly circumscribed.

Introducing such rules could lead to inconsistency in the way in which cases are dealt with. That could depend on the working practices of a particular judge. Some judges might refer some parts of a case to the CAT; but a different judge might decide to keep the whole case. That would be unsatisfactory for the parties involved because they would not have a clear idea of the path that their case would take.

The point was not spoken to, but the amendment would also involve a substantial enlargement of the powers of the CAT as currently proposed. It appears to allow the CAT to take initial decisions on competition law breaches that are currently taken by the Office of Fair Trading. As the noble Lord, Lord Razzall, is nodding, perhaps that is what he meant to achieve. The CAT has the power to make decisions relating to breaches of competition law, but only those that have been the subject of an OFT decision and are subsequently appealed to the CAT. That is why it is called an appeal tribunal.

Shall I speak to the issue of the direct appointment of judges by my noble and learned friend the Lord Chancellor?

Lord Kingsland

Please do.

Lord McIntosh of Haringey

The proposal that my noble and learned friend the Lord Chancellor should be able to appoint judges directly cuts across the policy of the Lord Chancellor's Department that all appointments to the tribunal should be by way of open competition. Open competition does not rule out the possibility that some judges will be appointed chairmen, but they will have to apply for the posts when they are advertised. We would be delighted if some judges were to apply; they have valuable expertise to offer the tribunal, not least in the two new areas of damages and judicial review. However, we see no need to make express provision to allow for the direct appointment of judges. The policy favoured by my noble and learned friend of running a competition, which will have a set of chairmen in place by the time that the provisions of the Bill commence, is the right one.

5.30 p.m.

Lord Borrie

Does my noble friend the Minister agree that, in any case, judges are already eligible, under Schedule 2, for the appointments to which the amendment applies? All judges have the 7-year or 10-year qualification referred to in the schedule.

Lord McIntosh of Haringey

I hoped that I had said that. That is the Government's position.

Lord Kingsland

The amendment would have covered that issue as well. However, I understood that the view of the Lord Chancellor's Department was that the noble and learned Lord had the power to appoint judges in the way suggested by the Minister. That is why it was thought unnecessary to cover the matter in the amendment.

Lord McIntosh of Haringey

My noble and learned friend does, of course, have that power, but he has made it clear that he intends to open up the system for the appointment of judges to competition. I would have hoped that that would be generally welcomed.

Lord Kingsland

The noble and learned Lord the Lord Chancellor may well wish to open the system up to competition, but he can still assign the winners of that competition in any way he likes.

I shall deal with the principal objections that the Minister raised, although I am sure that the noble Lord, Lord Razzall, will deal with them too. The Minister said that it would be inappropriate for a second court to accept a determination of issues that had been raised in the first court. Essentially, he asked why the second court should accept the findings of the first court, if the case were transferred to it.

Lord McIntosh of Haringey

I am sorry to keep bobbing up and down. The issue is not whether the second court should accept the decisions of the first court; it is whether those decisions are binding.

Lord Kingsland

There is nothing exceptional about the situation. Even before the enactment of this Bill, that will often be the position. Findings of fact will have been made in public law proceedings under Chapter 1 or Chapter 2 of the Competition Act 1998 or under Articles 81 or 82 of the EC treaty. Subject to certain conditions, such findings of fact will be treated as determinative in subsequent actions. That has always been the case.

The Minister's second objection was that the amendment would, in some way, expropriate the Office of Fair Trading or the competition authorities of the European Community of their powers. That is not so. We are discussing the transfer of matters that are the subject of private actions in the High Court—that have been brought either under Articles 81 or 82 of the EC treaty or under the corresponding provisions of Chapter 1 and Chapter 2 of the Competition Act 1998. The intervention of the competition authorities is not an issue.

Lord Razzall

I welcome the fact that the Minister said that he would consider the matter. Some important points have been raised. As the noble Lord, Lord Kingsland, said, it is not a party political matter. There is no politics in it: we are just trying to get the Bill right.

One point to which the Minister did not refer is that the amendment looks ahead to what we believe will be the structure of competition law in a year or two. Perhaps I did not emphasise that enough in my opening remarks. The noble Lord, Lord Kingsland, and I made the point that most practitioners anticipate that the powers devolved by the European Commission will come back to the structure in the UK. In other words, many decisions currently taken in Brussels will be taken in the UK.

It is likely that those decisions will, initially, be made by the OFT and that appeals will go from the OFT to the competition appeal tribunal. We are unlikely to have further legislation in place when that happens, but the amendment would create a structure so that the right bodies—the courts or the competition appeal tribunal—will be ready to hear the appeals. The courts will determine the damages and the competition appeals tribunal will determine cases relating to the complex inter-relationship between law, fact and economics, of which the classic example is appeals about the exemptions in Article 81(3). If the Government accept that that is what will happen, we must then ask what the composition of the CAT should be.

In the history of English law—I say, "English law", although we should bear in mind that it is an issue for the whole of the UK—when a raft of particular cases comes to the judiciary, people with expertise in that area are appointed to the High Court Bench. There is, in effect, a commercial court: judges are appointed to the High Court to deal with complicated commercial cases. I presume that, when the noble and learned Lord the Lord Chancellor introduces his new policy of advertisement for the judiciary, knockabout criminal lawyers from the Old Bailey will not apply for a job in the commercial court. Presumably, the noble and learned Lord will advertise for commercial court judges.

We would not want to create a situation in which, because of the number of cases that come to the High Court, we would appoint to the High Court Bench only people with experience of competition law. We would want to build up a corpus of judges with competition law experience in the same way as the commercial court has developed. Those people should apply for appointment to the competition appeal tribunal because that is where they could best apply their judicial skills and their economic experience.

Lord McIntosh of Haringey

I shall say another word about the relationship between the court and the competition appeal tribunal. Under the Bill, the High Court can—as it already does—award damages in competition cases. That is not in question. The point is that the competition appeal tribunal offers an alternative route—only—for cases in which infringement of competition law has already been established. That will be the expertise of those on the tribunal.

Lord Razzall

I do not want to labour the point, and I know that the Minister will consider the matter. We are supposing that, not many years hence, a raft of decisions will be taken in the UK that, currently, are taken in Brussels. Major decisions are to be devolved to the UK. We want to see powers taken in the Bill under which the correct elements of those decisions should be taken by the competition appeal tribunal, the members of which will be qualified to deal with the complicated relationship between economics, facts and the law that practitioners in the field must have. The Bill is designed to confer on the Government powers to bring forward regulations to ensure that that can take place.

Although it is a complicated issue, in a nutshell it is what the noble Lord, Lord Kingsland, and I seek with the amendment. I am grateful to the Minister for his assurance that he will take the amendment away and think about it. On that basis, I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Viscount Allenby of Megiddo)

Before moving on to Amendment No. 86, I should advise the Committee that if Amendment No. 87 is agreed to, I shall not be able to call Amendments Nos. 88 to 93 inclusive under the rules of pre-emption.

Clause 17 [Damages]:

Lord McIntosh of Haringey

moved Amendment No. 86: Page 7, leave out lines 25 and 26 and insert— (1) This section applies to—

  1. (a) any claim for damages, or
  2. (b) any other claim for a sum of money,
which a person who has suffered loss or damage as a result of the infringement of a relevant prohibition may make in civil proceedings brought in any part of the United Kingdom. (1A) In this section "relevant prohibition" means any of the following— The noble Lord said: In moving Amendment No. 86 I wish to speak also to Amendments Nos. 87, 94 and 95. Late on Tuesday evening we dealt with a number of paving amendments which in themselves were not of great significance; the significance arises in this group of amendments. Later, Amendments Nos. 103 and 108 are consequential amendments that complete the pattern.

The amendments relating to Clause 17 replace most of the current clause with a redrafted version. There is nothing substantially new in the redraft, but it provides greater legal clarity and should reduce uncertainty.

Clause 17 amends the Competition Act 1998 to allow the competition appeal tribunal to hear claims for damages in cases where a breach of competition law has been established. This covers breaches both of the prohibitions in the Competition Act itself and breaches of the prohibitions in the Articles 81 and 82 of the European Communities Treaty.

The competition appeal tribunal will have jurisdiction to hear damages claims where a breach of competition law has been found by the OFT in respect of a Chapter I or Chapter II prohibition set out in the 1998 Act, or by the European Commission or the OFT in respect of Article 81 or 82. Once the appeals process for the relevant decision has been exhausted, parties harmed by the anti-competitive action will be able to seek damages before the competition appeal tribunal.

Parties will still be able to claim damages through the courts in the usual way. However, the CAT route will offer significant advantages by virtue of more streamlined procedures and the availability of expertise in competition law and the effects of anticompetitive activity. The noble Lords, Lord Razzall and Lord Kingsland, referred to those when discussing the previous amendment.

Amendment No. 86 expresses with greater clarity the point made by existing subsection (3); namely, that the scope of a damages claim made before the tribunal is to be the same as that made before a court. It also makes it clear that the damages which may be awarded include all monetary awards which can be awarded by a court in respect of the relevant infringement. This could conceivably include claims for the restitution of profits unlawfully made by the infringing company as well as in respect of loss caused to the injured party, although the scope for these will depend on the evolving jurisprudence of the courts.

Under Amendment No. 87, subsections (5), (6), (7) and (9) are merely reworded versions of current subsections (2), (5), (4) and (6) respectively. Subsection (4) simply teases out the wording that is currently at the beginning of subsections (4) and (5). Subsection (8) clarifies that the competition appeal tribunal will be bound by decisions relating to the various prohibitions in competition law.

Amendment No. 94 clarifies that claims can be made under this section even if the cause of action arose before the commencement of these provisions. Of course such claims can already be made in the courts.

Amendment No. 95 is merely a redrafted version of Clause 18 that provides greater legal clarity. Clause 18 amends the Competition Act 1998 to introduce the right for consumer organisations to bring claims for damages on behalf of groups of named and identified consumers. These group claims for damages can be made only before the competition appeal tribunal, not in front of the courts. As in the case of individual damages claims brought in by the CAT, a claim can be brought only where a breach of competition law has already been established. Once the full appeals process relating to the relevant decision on the breach of competition law has been exhausted, organisations will be able to bring forward the claim. However, the consumers concerned must have given their consent before any claim can be commenced.

Before bringing a group claim, organisations will have to apply to be specifically designated by the Secretary of State. If they are to be included in the list of specified bodies, applicants will have to meet published criteria. The designation of bodies will be by a statutory instrument made by the Secretary of State and subject to the negative resolution procedure.

Subsections (1) to (4) of the new version of Section 47B take the place of current subsections (1), (2), (3) and (5). The redraft clarifies the relationship between individual claims and consumer group proceedings. Subsection (5) applies certain provisions of Section 47A, inserted by Clause 17, to ensure that an infringement of competition law has to be established before a group claim can be brought, and the right to bring a group claim does not affect the right to bring a claim before the court.

Subsection (5A) is the only true new paragraph introduced by the amendment. It enables the competition appeal tribunal to order the defendant to pay any monetary remedies to the body bringing the claim forward for onward distribution to the relevant individuals, as long as all consent. But this subsection makes it clear that the damages will still be awarded to the individuals rather than to the representative body, which will be acting on their behalf in receiving the amounts due. In other words, the amendment merely provides an alternative distribution mechanism; that is, from the defendant to the consumer body arid then on to the individuals. It will be necessary for both the consumer body and all the individuals concerned to give their consent before the tribunal can make the necessary order. That decision will have to be taken at the beginning of the process.

The other essential ingredient of the mechanism introduced by subsection (5A) is the ability for consumer bodies to enforce awards where an order has been made that the money should go to the body for onwards distribution. The ability to do that was introduced by government Amendments Nos. 68 and 69.

I hope that the Committee will agree that these redrafts are clearer than the current versions. I beg to move.

On Question, amendment agreed to.

5.45 p.m.

Lord McIntosh of Haringey

moved Amendment No. 87: Page 7, line 34, leave out from beginning to end of line 37 on page 8 and insert— (2) For the purpose of identifying claims which may be made in civil proceedings, any limitation rules that would apply in such proceedings are to be disregarded. (3) A claim to which this section applies may (subject to the provisions of this Act and Tribunal rules) be made in proceedings brought before the Tribunal. (4) But no claim may be made in such proceedings—

  1. (a) until a decision mentioned in subsection (5) has established that the relevant prohibition in question has been infringed; and
  2. (b) otherwise than with the permission of the Tribunal, during any period specified in subsection (6) or (7) which relates to that decision.
(5) The decisions which may be relied on for the purposes of proceedings under this section are—
  1. (a) a decision of the OFT that the Chapter I prohibition or the Chapter II prohibition has been infringed;
  2. (b) a decision of the OFT that the prohibition in Article 81(1) or Article 82 of the Treaty has been infringed;
  3. (c) a decision of the Tribunal on an appeal from a decision of the OFT that the Chapter I prohibition, the Chapter II prohibition or the prohibition in Article 81(1) or Article 82 of the Treaty has been infringed;
  4. (d) a decision of the European Commission that the prohibition in Article 81(1) or Article 82 of the Treaty has been infringed; or
  5. (e) a decision of the European Commission that the prohibition in Article 65(1) of the Treaty establishing the European Coal and Steel Community has been infringed, or a finding made by the European Commission under Article 66(7) of that Treaty.
(6) The periods during which proceedings in respect of a claim made in reliance on a decision mentioned in subsection (5)(a), (b) or (c) may not be brought without permission are—
  1. (a) in the case of a decision of the OFT, the period during which an appeal may be made to the Tribunal under section 46, section 47 or the EC Competition Law (Articles 84 and 85) Enforcement Regulations 2001 (S.I. 2001/2916);
  2. (b) in the case of a decision of the OFT which is the subject of an appeal mentioned in paragraph (a), the period following the decision of the Tribunal on the appeal during which a further appeal may be made under section 49 or under those Regulations;
  3. (c) in the case of a decision of the Tribunal mentioned in subsection (5)(c), the period during which a further appeal may be made under section 49 or under those Regulations;
  4. (d) in the case of any decision which is the subject of a further appeal, the period during which an appeal may be made to the House of Lords from a decision on the further appeal;
and, where any appeal mentioned in paragraph (a), (b), (c) or (d) is made, the period specified in that paragraph includes the period before the appeal is determined.
(7) The periods during which proceedings in respect of a claim made in reliance on a decision or finding of the European Commission may not be brought without permission are—
  1. (a) the period during which proceedings against the decision or finding may be instituted in the European Court; and
  2. (b) if any such proceedings are instituted, the period before those proceedings are determined.
(8) In determining a claim to which this section applies the Tribunal is bound by any decision mentioned in subsection (5) which establishes that the prohibition in question has been infringed. (9) The right to make a claim to which this section applies in proceedings before the Tribunal does not affect the right to bring any other proceedings in respect of the claim." On Question, amendment agreed to.

[Amendments Nos. 88 to 93 not moved.]

Lord McIntosh of Haringey

moved Amendment No. 94: Page 8, line 37, at end insert— (2) Section 47A applies to claims arising before the commencement of this section as it applies to claims arising after that time. On Question, amendment agreed to.

Clause 17, as amended, agreed to.

Clause 18 [Claims on behalf of consumers]:

Lord McIntosh of Haringey

moved Amendment No. 95: Page 8, line 42, leave out from beginning to end of line 9 on page 9 and insert— (1) A specified body may (subject to the provisions of this Act and Tribunal rules) bring proceedings before the Tribunal which comprise consumer claims made or continued on behalf of at least two individuals. (2) In this section "consumer claim" means a claim to which section 47A applies which an individual has in respect of an infringement affecting (directly or indirectly) goods or services to which subsection (6) applies. (3) A consumer claim may be included in proceedings under this section if it is—

  1. (a) a claim made in the proceedings on behalf of the individual concerned by the specified body; or
  2. (b) a claim made by the individual concerned under section 47A which is continued in the proceedings on his behalf by the specified body;
and such a claim may only be made or continued in the proceedings with the consent of the individual concerned. (4) The consumer claims included in proceedings under this section must all relate to the same infringement. (5) The provisions of section 47A(4) to (9) apply to a consumer claim included in proceedings under this section as they apply to a claim made in proceedings under that section. (5A) Any damages or other sum (not being costs or expenses) awarded in respect of a consumer claim included in proceedings under this section must be awarded to the individual concerned; but the Tribunal may, with the consent of the specified body and the individual, order that the sum awarded must be paid to the specified body (acting on behalf of the individual). On Question, amendment agreed to.

[Amendments Nos. 96 to 102 not moved.]

The Deputy Chairman of Committees (Viscount Allenby of Megiddo)

For the information of the Committee, Amendments Nos. 96 to 101 are preempted by virtue of the fact that Amendment No. 95 has been agreed to.

Lord Kingsland

I apologise to the Committee. Because I was taken completely unawares by the fact that three or four lines had been pre-empted, as has been said, I shall simply not oppose the Question that Clause 18 shall stand part of the Bill.

Clause 18, as amended, agreed to.

Clause 19 [Findings of infringements]:

Lord McIntosh of Haringey

moved Amendment No. 103: Page 9, line 35, leave out "for damages" and insert "in which damages or any other sum of money is claimed The noble Lord said: This amendment is consequential on the redraft of Clause 17. It merely makes allowances for any proceeding where the claim is for a monetary remedy other than damages. So a claim might be brought for the restitution of profits unlawfully made by the infringing company, as well as in respect of loss caused to the injured party. I beg to move.

On Question, amendment agreed to.

Lord Kingsland

moved Amendment No. 104: Page 10, line 4, after "OFT" insert "or the European Commission". The noble Lord said: In moving this amendment, I shall speak also to the other amendments in the group.

As presently drafted, the new Section 58A would not operate to make a decision of the European Commission that there had been an infringement of Article 81(1) or Article 82 binding upon a national court in proceedings before it for damages. This is anomalous given that findings by the OFT in respect of precisely the same infringement would he binding upon a national court in these circumstances.

There would appear to be no justification whatsoever for the distinction drawn between decisions of the OFT and decisions of the European Commission in this respect. Both the European Court of Justice and the English High Court have recognised that decisions of the European Commission should generally be followed by national courts. Indeed, as a matter of English law, a national court is now bound to uphold a finding of the European Commission that there has been a breach of Article 81(1) or Article 82.

It is submitted that the fact that the common law achieves a similar result to that which would be achieved by the proposed amendment does not make the proposed amendment redundant. The common law must be applied to the facts of each individual case by the courts. Defendants will, of course, attempt to take advantage of a variety of technical legal arguments to escape the conclusion that any particular decision of the European Commission is binding.

Requiring claimants to rely upon a developing body of case law rather than a clear legislative pronouncement introduces an additional element of uncertainty into any private action for damages. The proposed amendment would put the matter beyond all doubt and would encourage and facilitate private actions in national courts following a finding of infringement by the European Commission. I beg to move.

Lord McIntosh of Haringey

I hope that I can readily put the noble Lord's mind at rest.

Amendment No. 104 is unnecessary, as Article 81 and Article 82 decisions taken by the European Commission are already binding on UK courts by virtue of European law. I rely on the judgment of the European Court of Justice in the Masterfoods case, which is referred to in paragraph 82 of the Explanatory Notes (ECJ Case C-344/98 Masterfoods v HB Ice Cream, at paragraphs 45 to 60 of the judgment).

Indeed, Amendment No. 105 provides an illustration of the confusion that can arise if an attempt is made to codify in a statutory provision in our law the position under European law. A decision of the European Commission has binding effects on the national courts, notwithstanding that it may be the subject of proceedings before the European Court of Justice or the court of first instance. However, it would no doubt normally be sensible for the national court to stay its proceedings pending the outcome of the European proceedings, or alternatively to make a preliminary reference itself to the European Court. The amendment proposed would be an inaccurate summary of the position under European law, since it might suggest that the Commission's decision was without legal effect before the European proceedings had been determined.

Amendments Nos. 106 and 107 are consequential on Amendments Nos. 104 and 105.

Lord Kingsland

I am most grateful to the Minister. I shall go away and look at the case. If it does indeed illustrate the point that he makes, I shall happily allow the matter to rest there. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 105 to 107 not moved.]

Clause 19, as amended, agreed to.

Clause 20 agreed to.

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

Lord McIntosh of Haringey

moved Amendment No. 108: Page 205, leave out line 20 and insert "or other sum in respect of a claim made in proceedings under section 47A, or included in proceedings under section 47B (other than a decision On costs or expenses) or the amount of any such damages or other sum; and The noble Lord said: Amendment No. 108 is a consequential amendment that is required as a result of the redrafting of Clauses 17 and 18. The amendment ensures that any sums awarded in claims under Section 47A, or in claims included in group consumer claims under Section 47B, may be the subject of an appeal to the Court of Appeal or to the Court of Session in Scotland. I beg to move.

On Question, amendment agreed to.

Schedule 5, as amended, agreed to.

Clause 21 [Duty to make references in relation to completed mergers]:

Lord Kingsland

moved Amendment No. 109: Page 10, line 35, leave out "shall" and insert "may at its discretion The noble Lord said: The purpose of this amendment is to give the OFT a discretion rather than leave it under an obligation to make a reference to the Competition Commission in relation to both completed and anticipated mergers.

The Bill introduces a significant change of emphasis. Under the Fair Trading Act, the Secretary of State had discretion whether or not to refer mergers, acting on the advice of the Director-General of Fair Trading, whose advice, since October 2000, has always been accepted. The formulation proposed in Clauses 21 and 32 requires a reference to be made in the case of completed mergers and proposed mergers except in certain limited circumstances. The Minister in another place stated that there were no other circumstances in which a reference need not be made.

In practice, the clause will lead to a situation of almost obligatory pre-clearance for all mergers. Although many parties do that now, it is at their discretion. On Report, the Minister stated that those who raised such concerns seemed to be ignoring the fact that the OFT would apply a competition test. The Minister said that only cases that could lead to a substantial lessening of competition would be referred.

However, until we have a track record of the OFT applying the "substantial lessening of competition" test, it is very likely that in practical terms the parties will regard the absence of any discretion as a reason for seeking clearances in more cases than under the present regime. Moreover, in the case of joint ventures, the substitution of a £45 million turnover test for the £70 million assets test will mean that potentially many more joint ventures will now come within merger control.

There was no consultation on this change of policy. It was not mentioned in the White Paper. No reason has been given for the Minister's assertion that the new emphasis would not result in a greater number of references. I beg to move.

6 p.m.

Lord Borrie

I wonder whether the noble Lord, Lord Kingsland, is right in saying that there is no justification for the Minister's assertion in the other place that the new formula would not result in the reference to the Competition Commission of a greater number of mergers. He is of course aware that Clause 21(2) makes it clear that the OFT may not make a reference if it believes that, the market concerned is not … of sufficient importance", or if there are relevant customer benefits that, outweigh the substantial lessening of competition". that would arise from the merger. That cuts down the number of mergers where the duty of the OFT to make references to the Competition Commission arises.

I shall not debate the points that we shall no doubt discuss under the next amendment of the noble Lord, Lord Kingsland, but the key provision is based on the substantial lessening of competition. In legal terms, the noble Lord is correct in saying that there is no track record, because it is a new statutory test. In the past there was no statutory test other than the broad one on public interest; and several criteria, of which competition was one.

But to say that there is no track record is a wrong inference. The record shows the test's existence not only since the Competition Act 1998, or the year 2000 to which the noble Lord referred, but for at least the past couple of decades since the famous Tebbit test was announced whereby mergers would—save in exceptional circumstances—be referred to the Competition Commission only where there was a significant likelihood of a reduction in competition. It may not have been a statutory test, but it has been the test applied by both the Office of Fair Trading and Ministers, who are still involved until the Bill becomes law. The concern of the noble Lord, Lord Kingsland, does not seem justified.

Lord Sainsbury of Turville

Amendments Nos. 109 and 117 seek to give the OFT a discretion, rather than a duty, to refer completed and anticipated mergers that meet the reference criteria. Perhaps it would be helpful to set out the Government's thinking on the reference test to be applied by the OFT. The OFT's duty in relation to referring mergers has been crafted to reflect the two key principles underlying our reform of the merger regime, that is, taking Ministers out of decision-making and focusing the regime on a clear, competition-based test. We think that those two principles should be closely linked. When handing over decision-making powers to an independent expert body such as the OFT, we think it is sensible to define closely the test that that body will apply. In this case, we wanted to ensure that the OFT would refer only on competition grounds; that is, where a merger may result in a substantial lessening of competition.

The amendments seek to leave the OFT with a discretion to refer such cases. They mean that the OFT would have the power not to refer a case that would result in a substantial lessening of competition. The amendments leave the decision as to what would be a reasonable exercise of the power to the courts to determine.

However, the Government's intention is to set out clearly what cases should be referred by the OFT. Broadly, we think that a merger that could create competition problems should be considered further by the Competition Commission. However, we believe that there are three circumstances that would justify no reference even where there may be a substantial lessening of competition. They include those pointed out by my noble friend Lord Borrie—first, where the market or markets concerned are not important enough to justify a reference; secondly, where customer benefits flowing from the merger would outweigh any substantial lessening of competition; and, thirdly, in the case of an anticipated merger, where the merger is not, or not yet, likely to go ahead.

For those circumstances we have given the OFT discretion over whether to refer the merger. We do not think that there are any other circumstances that would justify the clearance of a merger that may result in a substantial lessening of competition. We think it is important for Parliament to set out the parameters of the powers to be exercised by independent bodies. In this case, we are proposing a sensible test that focuses on the OFT's area of expertise, grants flexibility where it will be sensible for the OFT to exercise discretion, but does not—as the amendments would—leave the scope of the new regime to be determined by a body independent of Parliament and government. In view of those arguments, I invite the noble Lord to withdraw his amendment.

Lord Kingsland

I am most grateful to the Minister for his reply. Is it reasonable to assume that in practice there will be no change; that although there is a different test, and the relationship between the Minister and the OFT is changed, nevertheless the historic track record—to use the expression in a slightly different context from that in my opening speech—is a good guide to conduct in future? Is that what the Minister is in effect saying?

Lord Sainsbury of Turville

The OFT does not consider that the change to a competition-based test will result in a different number of merger references given the situation in recent years.

Lord Kingsland

So the new test is not really a change in policy.

Lord Sainsbury of Turville

No. Given that it has been accepted that the competition test is by and large the one that Ministers have said they will base their judgments on, that is likely to mean a continuity of policy.

Lord Kingsland

I am most grateful to the Minister. I shall reflect on these exchanges over the summer adjournment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Kingsland

moved Amendment No. 110: Page 10, line 38, leave out from "resulted" to end of line 40 and insert "in the creation or strengthening of a dominant position, as a result of which competition is likely to be significantly reduced within any market or markets in the United Kingdom for goods or services The noble Lord said: As we have just heard, the Government propose to introduce a new competition-based test to determine whether the OFT should refer a merger to the Competition Commission. It replaces the public interest test in the Fair Trading. Act 1973. We accept that a competition test has been applied for some time; nevertheless it makes sense to enshrine the change in the statute. The test the Government propose is the substantial lessening of competition, which is the test applied in the United States, Canada and Australia.

However, we urge the Government to reconsider their position and instead to adopt the dominance test, which is the test applied in the European Community. It is the standard for assessing mergers under the EC Merger Regulation. The new test would impose a different standard for assessing the potential effect of mergers from that at EU level. The recent judgment of the court of first instance in the Airtours case has shown that there is a significant difference between the dominance test and the SLC test, given the requirements now established for proving collective dominance.

Businesses operating in the United Kingdom should not be faced with a different merger test in this country simply because the transaction in question does not fall within the ECMR. In addition, as there is no established case law in Europe applying a statutory SLC test, the outcome of merger references will be less clear and predictable for UK businesses.

Most member states, to say nothing of the applicant states, have aligned their merger control provisions to the current dominance test. It would be more helpful for United Kingdom companies doing business across Europe to operate under a common standard.

The new test is one of the big surprises for me. When we debated the Competition Bill in 1998, the Government's clear underlying philosophy was to align our domestic law and its competition tests with European Community law and its competition tests. More times than I care to remember, Ministers said, "We want to simplify things for the British businessman. He is currently faced with a myriad tests. We want him to look at what he is doing in the context of one test". Yet four years later, when the Competition Act is only just beginning to bite in many respects, the Government have completely changed their approach on mergers.

Certainty in the law is important. If the Minister believes, as he said on the previous amendment, that the new test will not make much difference to the policy of the OFT and the authorities, that is a fortiori a reason for not introducing it. I beg to move.

Lord Borrie

Superficially there is a great deal in what the noble Lord, Lord Kingsland, says about European countries and the European Union itself having a dominance test, while we are proposing a different test of substantial lessening of competition. However, the noble Lord gave the impression that the test is new. As I said on the previous amendment, while it is new in legal terms because it has not been established in statute, it has in practice been operated for a couple of decades by successive Ministers under different colours of government, as well as by the Office of Fair Trading.

Secondly, in its Green Paper the European Union explained its thinking that a substantial lessening of competition test might be better from an economic point of view than the dominance test embodied in the 1989 regulation that governs mergers with a Community dimension. There have been consultation papers and government papers raising the possibility of that. Responses are available to government. The test that is now embodied in the Bill has not come out of thin air.

More than anything else I am concerned that we adopt the best test in economic terms. It is not clear to me whether a dominance test would deal with the possibility of a merger strengthening a non-collusive oligopolistic market. When a merger involving two companies in the same market comes before the Competition Commission, we want it to consider not just whether the merger may result in one dominant or monopoly company, but whether it will leave a number of companies in the market, but all refraining from any real competition. Markets that are characterised by the presence of only a small number of firms with significant market shares may operate just as uncompetitively—and therefore badly from the customer's point of view—as a market dominated by a single undertaking. It has not been clear how far European law, in relation to the European merger regulation, can prevent collective dominance in oligopolistic markets. If a merger merely strengthens an existing oligopoly, it is doubtful whether European law applies to prevent it.

The dominance test is more legalistic than the test proposed in the Bill. The test proposed in the Bill has more economic significance and a closer relationship to the way in which the Office of Fair Trading, the Department of Trade and Industry and the Competition Commission have been dealing with and considering the adverse effects or otherwise of a merger over the past 10 or 20 years. The test that has been tried out through consultation papers on relevant associations and companies in this country is more likely to achieve what we want, which is that mergers should not be allowed if they create a significant adverse consequence on competition, unless there are significant customer benefits that outweigh that.

6.15 p.m.

Lord Sainsbury of Turville

The noble Lord, Lord Kingsland, takes slightly too simple an approach to harmonising our mergers competition test with that in Brussels. The amendments would replace the mergers substantial lessening of competition test with a European-style dominance test.

I stress again that the Government's choice of test for the new regime has been the subject of careful and extensive consultation. The question was first raised in the Government's consultation document on the reform of the merger regime, published in August 1999. There was further consultation in October 2000 and again following the publication of the White Paper on competition last year. In addition, my officials have met with lawyers, economists and other experts about the new regime and about the most appropriate competition test to employ. A large majority of those who responded favoured a substantial lessening of competition test. They believe that it represents a better economic test than the dominance test currently used in the European Community merger regulation.

The response from the City of London Law Society, which is expert in the competition field, sums up the issues effectively. It said: The Group does not favour the adoption of a dominance test due to its inflexibility in dealing with a range of situations including oligopolistic dominance and highly leveraged acquisitions. It does not see any benefits from having the same substantive test at a national level as in the ECMR. Additionally, it should be noted that other established merger control regimes within the EC have not found it necessary to adopt the ECMR test". The substantial lessening of competition test is, in effect, currently applied by the UK authorities in their competition analysis.

The noble Lord, Lord Kingsland, wants continuity. The substantial lessening of competition test provides a high degree of continuity between the new and old regimes in terms of substantive analysis. The so-called substantial lessening of competition test has the key advantage of allowing the authorities to concentrate on the overall effect of a merger on competition, rather than on structures. It will allow the authorities to act whenever there is an increase of sole, joint or collective market power resulting from a merger.

The key concern with a dominance test is uncertainty as to when the authorities can take action in circumstances in which a merger will not lead to one firm having a substantial market share but where the merger nevertheless increases the likelihood of the firms remaining in the market acting in an anticompetitive way. To use economic terms, there is considerable uncertainty about whether a dominance test is effective for dealing with the creation of non-collusive, oligopolistic markets. European law has developed a concept of "collective dominance" that partly bridges the gap but the concept's application in the context of mergers is not ideal.

The substantial lessening of competition test is preferable in alluding to the impact of a merger on the whole market rather than concentrating on the position of a particular market participant. Because of concerns that a dominance test did not satisfactorily cover collective dominance cases, Australia in 1993 and New Zealand last year switched from a dominance to a substantial lessening of competition test. Among our European Union colleagues, the Irish Government recently enacted a new competition law that adopts a substantial lessening of competition test in preference to dominance. Spain has a similar test of whether a transaction may prevent the maintenance of effective competition in the market.

The Green Paper on reforms to EU merger regulations raises a substantial lessening of competition test as a possible option to replace dominance. Decisions about that have not been taken. In a recent speech, Commissioner Monti said that he personally had an open mind about the choice of test: We are not wedded to the current wording and have no prejudice in favour of one formulation or another. What matters is the effectiveness of the legal instrument". Some people claim that a dominance test is a more certain test of business by providing a more predictable outcome. I do not agree. The concept of a substantial lessening of competition test is an economic one that is used and well understood in a number of other major jurisdictions—including the United States, Japan, Canada, Australia and New Zealand. It is best understood by reference to the question of whether a merger would increase or facilitate the exercise of power in a market—leading to reduced output, higher prices, less innovation and lower quality or choice. Any additional certainty will be provided by information and advice, which the authorities will be required to produce under Clause 103—explaining how they will consider references and how the relevant provisions will operate.

The US regime has operated successfully on the basis of a substantial lessening of competition test, backed by joint guidelines issued by the Department of Justice and the Federal Trade Commission. I have every confidence that the UK system can operate with the same degree of certainty and predictability. The arguments for harmonising our merger tests with that used in Brussels are not compelling. The one-stop-shop system for merger regulation within Europe means that cases—other than those concerned with security and other exceptions—fall either within the ECMR or UK regime but not both. Clear thresholds govern which jurisdiction will apply.

The Bill provides the freedom and opportunity to adopt the better test—that which will best preserve competitive intensity in our domestic market. We should take that opportunity rather than pursue harmonisation for its own sake. The substantial lessening of competition test is used in a number of other major international jurisdictions that are major trading partners of the UK. It is the strong preference of the Office of Fair Trading and the chairman of the Competition Commission. The majority of respondents to our consultation exercise agreed with that choice of test. I urge the noble Lord to withdraw the amendment.

Lord Kingsland

I am most grateful for the noble Lord's extremely full reply. He referred to consultation papers in 1999 but that was long before the Airtours decision—at a time when we believed that the European Commission's pursuit of the idea of collective dominance would not be halted, temporarily or otherwise, by the European Court. At the time, we had no reason to believe that the test which the Government are now seeking to adopt would be more effective than the collective dominance test as applied by the European Commission. It is only now that we have Airtours that a real distinction between the two tests has opened up.

Airtours may or may not survive an appeal to the European Court of Justice—because as I understand it, that decision is by the court of first instance. If the case is appealed and the CFI decision is reversed, the collective dominance doctrine will be re-established in the EU. In my submission, that doctrine is at least as effective as that which the Government are seeking to adopt.

My second point is directed at the Minister but encompasses the distinguished intervention by the noble Lord, Lord Borrie. Part 3 ought to be read with Part 4. The noble Lord's concern about the Airtours CFI decision is that oligopolies will be incapable of proper control by the EU authorities. But that will not be true in the case of the UK because the Bill allows the Competition Commission to examine a range of market imperfections, including oligopolistic practices. The UK legislation will fill the gap that the noble Lord fears will open up in the European context.

One treats with enormous respect any intervention by the noble Lord, Lord Borrie, because he is far and away the most experienced member of the Committee in competition matters. However, I hope that the noble Lord accepts that the UK authorities will not be stuck with the mergers section of the Bill for dealing with oligopolistic situations but will have other arrows in their quiver.

Lord Borrie

The noble Lord has been unduly kind to me, so I hesitate to intervene. However, there is a world of difference between preventing a merger that is undesirable because it may have a seriously adverse effect on competition and undertaking an investigation after the event—when it is difficult to go back to square one.

Lord Kingsland

I entirely accept that distinction but it encapsulates an appropriate approach. If dominance is not identified before the merger, a priori the merger should be allowed to proceed. If the merged company's subsequent conduct in the market is unattractively oligopolistic, the competition authorities can draw on other parts of the Bill to redress the anti-competitive feature. The Bill has the answer without introducing the new test.

I can reasonably assume from the Minister's remarks about the undesirability of consistency for consistency's sake that the Government's philosophy in respect of this Bill is very different from their philosophy in respect of the Competition Act 1998—when the idea of a consistent regime providing more certainty for business was central to the Government's approach to competition matters. I have now concluded that that is no longer the case.

I shall reflect very carefully on what the Minister said. I hope that he will accept that this is a very important matter and that he will forgive me if I return to it on Report. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6.30 p.m.

The Deputy Chairman of Committees

Before moving on to the next group of amendments, it may be for the convenience of the Committee if I advise it that Amendment No. 118 in the name of the noble Baroness, Lady Turner of Camden, has been decoupled from that group and will be moved separately.

Lord Hunt of Wirral

moved Amendment No. 111: Page 10, line 40, at end insert "for which the annual output exceeds £500 million The noble Lord said: I rise to move the amendment in the absence of my noble friend Lord Hodgson of Astley Abbots. The amendment would insert words at the end of Clause 21(1)(b) so that the paragraph would read: the creation of [the relevant merger situation] has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services for which the annual output exceeds £500 million". It is linked to further amendments in the names of my noble friend Lord Kingsland, myself and my noble friend Lady Miller of Hendon. Those amendments recognise that the Government propose to remove the assets test in the Fair Trading Act 1973 and replace it with a turnover test; namely, as one can see from Clause 22(1)(b), that, the value of the turnover in the United Kingdom of the enterprise being [acquired] exceeds £45 million". The purpose of this group of amendments is to allow the Committee to consider whether or not the system will become clogged up through the Office of Fair Trading having to review transactions which are comparatively unimportant in competition terms; hence the wish on the part of my noble friend Lord Hodgson to insert an annual output test and the wish in Amendment No. 113 to increase the turnover test from £45 million to £70 million.

Perhaps I may make it clear immediately to the Minister and to Members of the Committee that I believe it is right to remove the assets test from the scope of the UK's merger regime because assets are not the best measure of the market strength, or otherwise, of a company. As the Government acknowledged, I believe, in 1999, when the reforms were first floated, asset structures are changing. Consequently, it is now recognised that the assets test is outdated and no longer relevant to the modern world of mergers and acquisitions. However, if the Government are to replace the assets limb of the test with a turnover test, my contention is that a figure of £70 million would be a more appropriate level than £45 million.

I am not sure how the Government arrived at the figure of £45 million. The Minister may well be able to take us through the thought processes which resulted in that surprisingly exact figure. I hope that the Government will accept that, in order to avoid the imposition of excessive burdens on both business and the Office of Fair Trading, it is important that the system does not become clogged up in the way that I described. Therefore, while it is right that a de minimis threshold is vital to the process of the competition regime, I believe that most outside observers will consider the figure of £45 million to be too small.

Other countries where regimes similar to the one under discussion are in place have far higher figures than the equivalent of £45 million. I believe that it is the view of the Confederation of British Industry that the figure should, indeed, be raised to £70 million.

Amendment No. 114 also appears in this group. That amendment seeks to replace the share of supply test with a market share test. The amendment would at page 12, line 11 of the Bill leave out subsections (3) to (7) and insert: The condition mentioned in this subsection is that the merger would create or strengthen a share of 25 per cent or more in any relevant market in the United Kingdom or a substantial part of the United Kingdom". As my noble friend has just been considering, the test for deciding whether to make a reference is now to be based on whether there is, or is likely to be, a substantial lessening of competition. We have agreed to consider carefully the points raised by the Minister in that respect.

However, if we were to accept that there should be a substantial lessening of competition, any such test would necessarily involve at least a preliminary assessment of markets and market share. The subsection, as drafted, would require the Office of Fair Trading to apply two tests: to look at markets for the substantive decision on a reference and the concept of the supply of goods or services of a similar description for establishing a jurisdiction.

We believe that the subsection drafted by the Government will be unnecessarily confusing as it combines a market definition, which is an economic test, with the subjectivity of the authorities under the old FTA regime in looking at aspects of the supply of goods or services. While the subjective approach may be acceptable in a regime where there is a wide discretion not to refer, surely it is unacceptable unless the changes which increase the discretion of the OFT in relation to Clauses 21 and 22 are incorporated.

In summary, I suppose that the core of the difficulty here is that the Government have bolted a new test on to the regime and the two do not marry well. If the share of supply test remains, there is a risk of the description being narrowly drawn. In the absence of a discretion on the part of the OFT, that would result in a larger number of references.

I turn to Amendment No. 115, which seeks to insert at the end of line 9 on page 13 of the Bill: Notwithstanding the above, a relevant merger situation shall not be deemed to have arisen for the purposes of this Part if the transaction in question has no effects (either actual or potential) in the United Kingdom or any part of it". Perhaps I may explain to the Minister that this is very much a probing amendment. Even if a share of supply test were not brought to bear, the turnover test would remain at the fairly high level of £45 million. Therefore, to prevent an excessive regulatory burden on UK business, surely it is right to ensure that the OFT does not have the opportunity or, indeed, does not have placed upon it the obligation, to spend the time and valuable resources involved in reviewing mergers that have no impact in the United Kingdom.

The asset test of £70 million and the turnover test of £45 million apply to world-wide turnover. Therefore, in some cases there may be no impact whatever in the UK. Thus, the purpose of Amendment No. 115 is to ensure that the companies involved would not find themselves falling foul of an immediate and automatic OFT inquiry. Therefore surely such transactions need not be notified in the same way.

To summarise, a relevant merger situation will be deemed to have arisen if either the new turnover test or the share of supply test is satisfied. However, in order to prevent business from having excessive regulatory burdens and to remove the need for the OFT to expend time and resources by reviewing mergers with no impact on the UK such transactions should be excluded from the jurisdiction of the OFT. I beg to move.

Lord Sainsbury of Turville

I speak to Amendments Nos. 111, 113, 114, 115 and 119. Perhaps I may take together Amendments Nos. 111 and 119 as they seek to introduce what I would characterise as a "de minimis" provision. They would have the effect of preventing the OFT and the Competition Commission from taking any action against mergers in markets below a certain size.

Clause 21(2) of the Bill gives the OFT a discretion not to refer a merger where the market or markets concerned are not of sufficient importance to justify making a reference to the Competition Commission. The issue raised by the amendments is whether to introduce a formal and more absolute de minimis provision or to rely on the OFT and the commission to exercise their judgment sensibly having regard to the guidance that both will he required to publish under Clause 103 of the Bill.

De minimis thresholds are tricky because all markets are different and at different stages of economic development. Some may be declining, about to be superseded by new technology. The current size of such a market might not be a reliable indicator of its economic importance. Conversely, a small market in an emerging technology may have considerably greater longer term significance such that a reference would certainly be justified. We think, therefore, that it would be better to leave the authorities discretion to make their own judgments in this area, which is what the term "sufficient importance" is intended to allow for.

I turn now to the amendments concerned with the jurisdictional tests for the new merger regime. The jurisdictional tests are ones that determine whether a merger is subject to merger control regulations.

I deal first with Amendment No. 113. The amendment seeks to raise the UK turnover threshold of the target company from £45 million to £70 million. I understand that the concern is that the £45 million figure would overload the OFT with benign cases and would prejudice the system against, for example, new technology companies with small asset value but high turnover.

The £45 million figure was derived from data research we undertook in my department. Briefly, the figure is based on an analysis of the assets and turnover levels of 110,000 UK companies. Our intention was to find a figure that we believed would account for roughly the same number of companies as is currently the case under the assets test.

What we have is an informed estimate. One needs to be clear about that. I do not accept that there is anything to be gained from replacing one informed estimate with another less informed one. Further, I do not believe that a direct comparison can he made between the value of assets and the value of turnover, especially considering that £70 million assets is a world-wide figure and £45 million turnover is limited to the UK.

However, we acknowledge that some unease exists about the level of £45 million. We think that our evidence supports it but we are willing to look at it again to reconfirm what would he an appropriate figure for the turnover test. In particular, we would he grateful for any suggestions from interested bodies on how the figure should he derived. In the light of this commitment, I hope that the noble Lord will be prepared to withdraw the amendment.

Amendment No. 114 seeks to replace the current jurisdictional definition of' share of supply with a definition based on "market share". A similar amendment was put forward in another place. I echo again the reasons why we think that the share of supply test is the right test for our merger regime. It has the characteristics of being a simple, transparent and easy to apply test that is appropriate for a jurisdictional threshold. Calculating the more economically substantive market share test would be an extra burden on both business and the OFT. That is why we have not been pressed to make this change in any of the consultations we have run.

Amendment No. 115 seeks to make clear that a relevant merger situation does not include mergers that have no impact on the UK or part of it. Again, a similar amendment was put forward in another place. In those debates we sought to reassure honourable Members that the Government share the view that the activities of our competition authorities should be focused on mergers that have a direct impact on the UK markets.

The amendment was rejected because we consider that it is not necessary. That is because the new design of the jurisdictional tests ensures that they are concentrated on the UK markets. The share of supply test must be applied to the UK market or, as the case may be, a substantial part of it. The new turnover test will measure the turnover of the target company in the UK. It replaces an assets test which took account of world-wide assets.

We share, therefore, the sentiments behind the amendment but I hope that noble Lords are satisfied that the legislation as currently drafted does deliver the UK-focused regime that is intended. With those explanations, I hope that the amendment will not be pressed.

6.45 p.m.

Lord Hunt of Wirral

I shall want time to consider the Minister's response. I was interested to hear his remarks on Amendment No. 113. It is necessary to make a judgment as to the correct level. I have been unable to peruse the data research to which he referred. I am not sure whether it is publicly available. If the Minister were to consider sharing it with noble Lords, we could then judge whether £45 million is a better guesstimate than £70 million. I have not had access to detailed research. I do not know whether the Minister wishes to intervene. He seems of happy countenance at the suggestion that he might make the data research available.

Lord Sainsbury of Turville

I can see no reason why we would not make that available. However, I have described the nature of the information. The data suggests that we consider what test on turnover will equate to the assets test. The real question is whether that is the right way to proceed. We have a simple correlation. That is why we are happy to reconsider the point. But the matter for consideration is the principle rather than the data.

Lord Hunt of Wirral

I agree with the Minister that it is consideration of the principle. However, a figure is required in the Bill. Therefore, I am grateful to the Minister for agreeing to make the data research available. I also much appreciate his willingness to consider the matter further. My noble friends and I will ensure that outside organisations are made aware of the Minister's kind offer and that we respond accordingly.

I note what he said on Amendment No. 114. I should like time to reflect on it. He indicated that he was sympathetic to Amendment No. 115. I should like to consider several of the points he made. I shall consult with my noble friend on the Minister's comments on Amendment Nos. 111 and 119. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Kingsland

moved Amendment No. 112: Page 11, line 7, at end insert— () the enterprise being the subject of the proposed merger and being unable to meet its financial obligations cannot otherwise reorganise or dispose of its assets with lesser anti-competitive risk. The noble Lord said: Clause 21(2) sets out two instances where the OFT may not decide to make a reference to the Competition Commission, the first being where the market concerned is not of sufficient importance to justify a reference and the second being where customer benefits outweigh any adverse impact on competition. Both of those are welcome, although the Government or OFT should be required either to introduce thresholds or to produce written guidance before the Bill comes into force as to what will be deemed to be not of sufficient importance.

However, in our view, a further instance should be added: namely, the so-called "failing-firm" defence, which is applied in the United States and by the European Commission. In the United States the party wishing to rely on the defence must show, first, that the failing firm cannot meet its financial obligations; secondly, that the failing firm cannot reorganise in bankruptcy; thirdly, that the failing firm cannot find another buyer whose purchase of the firm would pose lesser anti-competitive risks; and, fourthly, that, in the absence of the merger, the failing firm's assets will exit the market.

As far as the European Community law is concerned, the failing-company defence has been applied since 1993. In a case called Kali-Salz/MDK/ Treuhand, of that year, although a dominant position was found to be created in the German market for potash, the case was cleared because it was considered that a prohibition would have led to the same outcome in the market as would have been the case if there had been a clearance.

In the Commission's decision the following three criteria were set out. First, the company will go bankrupt within the immediate future; secondly, the market shares of the company will in any case go to the merging party; and thirdly, there is no less anticompetitive way of selling the company. In other words, the main difference between the United States and the EU approach is that the latter imposes the additional requirement that the market shares of the failing firm will in any case go to the acquiring party.

We would be happy with either the EU test or the US test. I say that in the spirit of the Minister's new multinational approach to definitions in the Bill. I beg to move.

Lord Sainsbury of Turville

These amendments would make specific provision for the competition authorities to have regard to the matter of whether a merger involves a so-called "failing firm". Where the situation described in the amendments arises, that will naturally form part of the competition authorities' assessment against the substantial lessening of competition test. Therefore, we believe that the amendments are unnecessary. In fact, by particularising the "failing fines" case, the effect of the amendments could he to narrow the normal application of the substantial lessening of competition test.

Where the authority believes that a firm is to exit the market anyway because of insolvency or other financial difficulties, that will influence the assessment of whether the merger may be expected to result in a substantial lessening of competition. If competition would be diminished to the same degree regardless of whether the merger took place, it would not he possible to find that that merger would result in a substantial lessening of competition.

That is never an easy judgment to make. A number of factors come into play; for example, whether the failing firm's market share is likely to fall to the acquiring firm anyway, or be spread among the remaining players in the market. None the less, it is part of the competition assessment itself. We confirmed that in paragraph 126 of the Explanatory Notes which said, whether in the absence of the merger one of the firms would fail and, it' so, whether its failure would cause the assets of that firm to exit the market", that was one of the matters that may be potentially relevant to the assessment of whether a merger will result in a substantial lessening of competition.

Its application will be addressed in more detail in the guidance to be published by the OFT and the Competition Commission. It is worth pointing out that other major merger jurisdictions do not mention the failing firms concept on the face of their respective legislations. In the United States, for example, the issue is addressed in the FTC and the Department of Justice guidance and the same is true of Australia. The European Commission merger regulations also do not deal expressly with the failing firm issue but case law shows that it is a matter that can be taken into account in the assessment of whether a merger results in the creation of a dominant position. We are far from being alone in dealing with these issues in guidance. This is a matter that can be satisfactorily and more flexibly dealt with in guidance and I urge the noble Lords and the noble Baroness to withdraw their amendments.

Lord Kingsland

I believe that I am most grateful to the Minister for his response. I believe he is saying that although he is not prepared to put the test on the face of the Bill, in practice he would expect the competition authorities to apply it. On that basis I am happy to beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 21 agreed to.

Clause 22 [Relevant merger situations]:

[Amendments Nos. 113 to 115 not moved.]

Clause 22 agreed to.

Clause 23 agreed to.

Clause 24 [Extension of time-limits]:

[Amendment No. 116 not moved.]

Clause 24 agreed to.

Clauses 25 to 31 agreed to.

Clause 32 [Duty to make references in relation to anticipated mergers]:

[Amendment No. 117 not moved.]

Baroness Turner of Camden

moved Amendment No. 118: Page 19, line 37, at end insert— ()Before making such a reference, the OFT shall consider submissions from appropriate organisations, including those representing consumer interest and the workforces in the relevant undertakings. The noble Baroness said: Amendment No. 118 stands in my name and that of my noble friends. Unfortunately, the noble Lords, Lord Lea of Crondall and Lord Wedderburn, are unable to be present. At the outset I state my interest. I am a member and a former official of the trade union MSF (now Amicus), a union that on previous occasions has raised the whole issue of employee interests in merger and takeover situations.

I find it surprising that there is no reference at all in this part of the Bill to employees. I can understand that in a Bill about creating a fairer environment for competition, there should be some reference to consumers— although there is not much—but I am surprised that there is nothing about employees whose work and skills often lead to success and who are sometimes referred to as an enterprise's biggest asset.

There have been times during the past 20 or 30 years when the whole commercial and industrial scene appears to have been afflicted with "merger mania". One such episode took place shortly after I became a Member of your Lordships' House. In 1987, when I was still a working union official, I introduced a Private Member's Bill designed to protect staff in takeover and merger situations. At that time I was able to quote from British Business to the effect that, in 1986, industrial and commercial companies' expenditure on acquisitions and mergers within the UK reached a record £13.5 billion, almost double the 1985 total. The livelihoods of about 500,000 employees were bound up with those deals.

I said then that, the background to all this is a big rise in profits but stagnant investment in manufacturing industry. The City is finding it easy to provide finance for takeovers, but is still failing to provide investment capital in manufacturing industry". At that time, I quoted from Sir Gordon Borrie, as the noble Lord, Lord Borrie, then was—he was Director-General of Fair Trading—to the effect that although he strongly held that competition should be the main consideration in merger policy, he did not take the view that everything could be left to market forces. He said, I do not have complete faith in the 'invisible hand' of Adam Smith as the regulator of our economic and social affairs". In introducing my Bill, I said that I did not believe competition alone was an adequate yardstick. My Bill therefore provided for consideration of other factors. There should be a requirement to consider the interests of employees, to ensure that production and output in the UK are maintained for the benefit of the economy and to ensure some control of strategic industries where those are in the interests of national security. Of course, my Bill did not make any progress at that time, but when I look at the debate again, I am struck by how relevant are some of the statements made riot only by me, but also by some of the supporting speakers to the present situation. On 4th July 2002, an article appeared in the Guardian under the heading: Merger Mania Created Millionaires But Made Millions Poorer. How Take-over Frenzy Has Hit Shares Since 1998". A number of major mergers are listed. In almost every case, the share price had shown a catastrophic drop. GlaxoWellcome Smithkline, Vodafone, Airtouch, CDU, Norwich Union, AOL Time Warner, Deutsche Telekom, One2One and others.

This has not only badly hit individual shareholders, but also people who are members of pension schemes. And, in most cases, there have been job losses. Often, the employees know nothing about what is in store for them until they read it in newspapers or hear it on the radio in the morning, while getting ready for work. There was one notable case in which members of my union were involved. They did not know that merger talks had been proceeding. It had been a closely-guarded secret until they heard the announcement on early morning radio, accompanied by a statement that there would be 5,000 redundancies. At the time I introduced my Bill, the late Lord Denning supported me. He said: The employees, the servants, are the people who have built up the company and given it its goodwill. Certainly they should be consulted before any take-over of a company is effected". I turn to a heading of The Times dated 9th March 1987 which states in bold black headlines: The employees are a company's biggest asset and they must always come first. In these days of mergers and take-overs, the employees do not come first or last—they do not come into the matter at all". Our amendment does not go anywhere near as far as Lord Denning indicated. We simply ask that the OFT should receive submissions on behalf of employees. We have also included consumer interests, since these are not referred to in this part of the Bill either. Indeed, NACAB makes that point in its extensive briefing. Incidentally, it is sometimes forgotten that trade unionists are consumers too.

What we are suggesting is not uncommon. In the Netherlands, for example, a merger code gives unions more extensive rights than we seek. There, the unions' rights are consultative only, but they can give their views on the likely impact on employee interests before a merger agreement is finally signed. Works councils can appeal to the courts if companies act unreasonably.

I hope my noble friend the Minister will agree that it is right that a Bill concerned with enterprise—and ensuring that there is fair competition—should have some regard to the employees whose lives may be very adversely affected in a merger or take-over situation. Often they are likely to lose not only employment, but pension rights. These are very serious matters affecting sometimes thousands of people. Those who actually make the decisions, as the newspaper article points out, often become millionaires, but life is likely to become much more difficult for the employees who may have worked hard for the enterprises concerned. Our very modest amendment seeks to give such people a right to be heard. I beg to move.

7 p.m.

Lord Hoyle

I rise to support Amendment 118. 1 must declare an interest as member and past president of MSF, the section of Amicus.

In some cases it is far too narrow to regard the position as merely one of competition. My noble friend was right to say that there is no mention in this part of the Bill of consumers. Often competition is just looked at in the short term, rather than the long term, ignoring what effect it might have on consumer choice.

I am surprised that, in a Bill on enterprise, there is no mention in this part of employees or their rights. Let us look at unemployment. The company concerned may be a major or even dominant employer in a region, so any job losses have an effect not only on directly employed workers but also on sub-contractors, who are mostly from the same locality. This has an effect on the business community, particularly small businesses dependent on this employer and on the spending power of those who are their employees. So it has a major effect on many people and their families.

The other aspect to mergers is that while shareholders may benefit from a merger in the short term, very often mergers are shown to be a failure. Many mergers collapse after 12 months. But the damage has been done to those people who lost their jobs and the damage left on the area.

I hope that the Minister will consider this point. Having looked at the Bill, it seems that only competition is mentioned. There is a reference later on in Clause 57 to national security—whatever that may mean. I would prefer the Minister to look very carefully at our amendment with a view to accepting it. The amendment has some teeth that will benefit consumers and particularly employees affected by a merger. When a merger takes place, it is not known that a plant is to be closed, but very often that occurs within a short period. I hope the Minister will look at this amendment from a social point of view and will accept what I believe to be a very reasonable amendment.

Lord Sainsbury of Turville

The amendment seeks to ensure that the OFT will consider the views of consumer groups, employee representatives and other organisations before referring an anticipated merger to the Competition Commission.

The Government's intention has been to create a regime that will operate transparently and one which will allow interested parties to feed their views into the process. Where the OFT is considering whether to make a reference, Clause 102(1) requires the OFT to take action to bring information about the investigation to the attention of those it considers might be affected by the merger. In practice, the OFT intends to continue its current practice of publishing an invitation to comment notice. That will give all interested groups—including employee representatives and consumer groups—an opportunity to submit views. Administrative law requirements will then ensure that the OFT takes account of representations that it receives.

However, we need to say that the OFT will, of course, assess all mergers against the tests set out in the legislation. This is primarily about whether the merger may be expected to result in a substantial lessening of competition. The views of employee representatives will be helpful where they relate to the specific criteria set out in the legislation. However, specific employment issues will not factor in the OFT's decision in whether to refer the merger. That is because we believe that safeguarding competition is vital to delivering increased productivity which will in turn improve employment prospects overall. In addition, it is worth pointing out that the OFT will be required by Clause 104 to give full reasons for its decision—both to refer and to clear mergers.

Finally, Clause 117 gives any person aggrieved by a decision of the OFT scope to appeal to the competition appeal tribunal, for example, if the appropriate procedures have not been followed. We believe that these arrangements, taken together, are sufficient to ensure that the OFT will obtain and consider the views of third parties where relevant.

The noble Baroness and the noble Lord who put forward the amendment are looking for something more. If it were what the amendment says, that is already covered by current practice of the OFT. My noble friends were looking for other criteria against which mergers could be measured. It is absolutely fundamental to this Bill that we are talking strictly about competition—a test. We are not seeking for politicians or others to impose their judgment as to whether or not the merger makes sense economically.

I hope, with that explanation, my noble friend will withdraw her amendment, though I realise that what I have said only partially meets the point being raised.

Baroness Turner of Camden

I thank my noble friend the Minister for that explanation. I am glad that it is expected that there will be opportunity for employees' organisations to make submissions. I note that.

But my noble friend is correct: we looked for rather more than he gave. We were looking to widen the criteria because, as my noble friend Lord Hoyle made clear, we did not feel that competitiveness was sufficient on its own. We felt that other considerations should be taken into account.

However, it is not our intention to take this matter further this evening. We shall think carefully about it during the recess and consider whether or not we should say anything further on Report. We believe it to be an important question which matters to a great many people. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 32 agreed to.

Clause 33 agreed to.

Clause 34 [Questions to be decided in relation to completed mergers]:

[Amendment No. 119 not moved.]

Clause 34 agreed to.

Clause 35 agreed to.

Clause 36 [Cancellation and variation of references under section 21 or 32]:

Lord Sainsbury of Turville

moved Amendment No. 120: Page 22, line 41, at end insert— (2A) Where, by virtue of subsection 12), the Commission treats a reference made under section 21 or 32 as if it had been made under section 32 or (as the case may be) 21, sections 74 to 78 shall, in particular, apply as if the reference had been made under section 32 or (as the case may be) 21 instead of under section 21 or 32. (2B) Subsection (2C) applies in relation to any undertaking accepted under section 77, or any order made under section 78, which is in force immediately before the Commission, by virtue of subsection (2), treats a reference made under section 21 or 32 as if it had been made under section 32 or (as the case may be) 21. (2C) The undertaking or order shall, so far as applicable, continue in force as if—

  1. (a) in the case of an undertaking or order which relates to a reference made under section 21, accepted or made in relation to a reference made under section 32; and
  2. (b) in the case of an undertaking or order which relates to a reference made under section 32, accepted or made in relation to a reference made under section 21;
and the undertaking or order concerned may be varied, superseded, released or revoked accordingly. The noble Lord said: This group comprises a number of minor and technical amendments which all relate to the enforcement provisions of the merger regime. I do not believe that they raise any issues of substance. Members of the Committee will have received a letter setting out briefly the purpose and nature of the amendments. However, if it is helpful to the Committee I shall provide further details of the amendments we are tabling.

Amendments Nos. 120, 126, 132, 142 to 144 and 150 clarify what happens where a merger referred to as an anticipated merger becomes a completed merger during the course of an investigation or vice versa. That will happen only rarely. Amendments to Clauses 36, 48, 63, 104 and 125 provide that undertakings or orders that were accepted on one basis continue to have effect where the nature of the merger reference changes. The automatic restrictions on certain dealings in Clauses 74 and 75 will also apply as if the merger reference had been made on the relevant basis at the outset.

Amendments Nos. 127 to 129 and 139 make clear that the normal enforcement provisions contained in Clauses 74 to 78 apply to public interest cases where the public interest claim is withdrawn and the case is passed back to the Competition Commission to be investigated purely on competition grounds.

Amendments Nos. 135 and 136 are minor technical corrections to Clause 75 which take out references to Clauses 68 and 69, orders and undertakings. These are concerned only with completed mergers and are therefore not relevant in the context of anticipated mergers.

Amendments Nos. 137 to 140 make clear that if a replacement order is made under Clause 80, it is only specified undertakings which fall away. An order under Clause 80 will be brought when undertakings are not being fulfilled. It would not be desirable to penalise all parties where only one is in breach of its undertaking.

Amendments Nos. 165 and 166 are technical amendments to improve internal drafting consistency by aligning references to airport operators with language used elsewhere in Schedule 9. I beg to move.

On Question, amendment agreed to.

Clause 36, as amended, agreed to.

Clause 37 agreed to.

Clause 38 [Time-limits for investigations and reports]:

[Amendments Nos. 121 and 122 not moved.]

Clause 38 agreed to.

Clause 39 agreed to.

Clause 40 [Duty to remedy effects of completed or anticipated mergers]:

[Amendment No. 123 not moved.]

Clause 40 agreed to.

7.15 p.m.

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

Baroness Turner of Camden

moved Amendment No. 124: Page 26, line 39, at end insert— () "Public interest consideration" in subsection (2) shall include possible social consequences, including the effect on employment. The noble Baroness said: Amendment No. 124 stands in my name and that of my noble friends. It is clear that the Government want to hand over responsibility in merger and takeover situations to the OFT and the commission, and the sole criterion, as we heard this evening, appears to be competitiveness.

There is a clause about public interest but it seems clear that government intervention is only envisaged in the most extreme circumstances. I believe that to be wrong. It is surely clear that many mergers and takeovers have considerable social consequences, and only governments can deal with those. Indeed, they may have to if the consequences involve high unemployment in a particular region.

The TUC is concerned about that. It says in briefing: The danger for the Government is that removing Ministers from competition decisions will not prevent politically damaging situations arising, but will curb their ability to act when they do". If a company is a major employer, local communities and other local firms may be hit; regional development may be interrupted or brought to an end altogether. In other words, a large merger or takeover could affect adversely many thousands of people and not only those in the immediate environment.

We have recently been witnesses, as I said on the earlier amendment, to another round of mergers and takeovers—referred to as "merger mania". A recent newspaper article said that many of the deals were done when share prices were roaring. So the predators overpaid for their targets and are now having to write down huge amounts of money in their accounts to reflect the subsequent slump in value. That is the reason, perhaps, why Vodafone is nursing the biggest loss in Britain's corporate history.

Norwich Union and the CGU merged to become Aviva. But that lovely new name has not prevented a halving of the share price in 18 months. So it is not only employees in the relevant companies that suffer—often through job loss or demotion—shareholders suffer too, and of course pension funds. We have heard a great deal about a pensions crisis in recent weeks. The catastrophic drop in the stock market is cited as one of the reasons for the disappearance of defined benefit schemes. There may of course be other reasons as well, but a drop in share values clearly has made a major impact. So mergers and takeovers are not just about competitiveness.

Those are some of the reasons why the Trades Union Congress is saying that it does not agree that decisions as to whether mergers and takeovers should proceed should be made only on the basis of competition. The TUC believes that mergers and takeovers should be regulated in the public interest and that the impact on employment should be taken into account.

Our amendment is very simple; indeed it is modest. We are seeking to introduce it in the part of the Bill dealing with the public interest. We define that as possible social consequences, including the effect on employment. In those circumstances we believe the Government should be able to intervene. I urge my noble friend the Minister to accept the amendment. I beg to move.

Lord Hoyle

I support Amendment No. 124 in the name of my noble friend Lady Turner and myself. Again, I echo what my noble friend said. The Government are trying, in their words, to escape from political decisions; but what they cannot escape from are the consequences of those decisions. To remain on one side, or to pretend to do so, and simply rely on competition when social consequences are taking place is a decision they will regret in the longer term.

Perhaps I may give the media as one example. News International, owned by Rupert Murdoch, has newspapers read by 70 per cent of adults in this country. That is almost a monopolistic position yet the draft Communication Bill does not rule out a further take-over by that group. Of that 70 per cent, The Times is the best-selling "heavy". The Sun sells 4 million copies daily. Quite apart from The Sunday Times there is the News of the World which is the largest-selling Sunday paper.

I am not in favour or against or get too excited about the euro, but there is something to be said as regards Rupert Murdoch. He has already determined that before any referendum takes place his media interests will be opposed to the euro. That is a very dangerous position. Any further decision must have social consequences. I cannot see any Government, particularly one whom I support, backing away from taking that into account.

There is also the question of employment. Not very long ago it appeared that Rover was in a difficult situation which would have had grave consequences for the whole of the West Midlands. Given that situation, the Minister put together a rescue package because of the consequences which would have affected not only the company but all the suppliers in the area. There would also have been a devastating effect on the whole of the region.

What would happen if there were another bid for Rover? Could any Government, Minister or Secretary of State escape from the social and employment consequences? Given some of the circumstances, it is totally unrealistic to rely on competition. I hope that the Minister will look a little further. He realised that he did not satisfy us on the previous occasion. We are speaking here about public interest which can have tremendous social and employment consequences for the whole of the region and, as regards the media, for the whole nation. I ask him to accept this modest amendment, particularly having regard to the social consequences of a merger.

Lord Sainsbury of Turville

The amendment seeks to indicate a further public interest consideration, that the Secretary of State could intervene on decisions about mergers. I say to my noble friend Lord Hoyle that when we consider newspapers a different set of considerations are taken into account. The plurality of the press is covered by the Fair Trading Act and will be updated by the Communication Bill. A different set of considerations apply in that case. I shall be talking about other companies.

As the Bill stands, the competition authorities will take decisions on mergers on the basis of a focused competition test. The Secretary of State has power to intervene in a case that raises a public interest issue, which she believes should be specified in legislation. At present we foresee a need for ministerial intervention on national security grounds only. That is the only consideration specified in the Bill.

The Government have considered the case for specifying further matters, but we do not anticipate that Ministers will need to intervene on any other issues. That is why the Bill does not mention social effects or the effects on employment.

Switching away from the current public interest test to a competition test for assessing mergers has involved hard thinking and tough choices. It is a focused policy. We believe that in the vast majority of cases the economy is best served if mergers are assessed solely on the basis of their effect on competition and that these decisions are best taken by the expert competition authorities operating independently of Ministers.

Merger regulation is best aimed at safeguarding the competitive intensity in the economy. Competition provides the spur for businesses to be more productive, innovative and efficient, better able to provide long-term, sustainable employment and better products and services for consumers.

Adding social and employment factors to the test for mergers would create barriers to market restructuring. We believe that it is wrong to create such barriers unless there are significant anti-competitive effects. Restructuring must be possible if companies and markets are to remain dynamic and competitive.

I recognise, of course, that mergers can have adverse social and employment impacts in the short term, but I do not believe that the answer is to indicate that Ministers should step in on such grounds. That way lies uncertainty and unpredictability with political lobbying creeping back into the whole process.

The task for the Government is to make sure that the economy as a whole is strong and to help people who are affected to adapt, retrain and get new jobs. We have a good record for creating the conditions for a dynamic economy which can adjust to change. We have the lowest unemployment rate since the 1970s, the lowest rate of inflation and the lowest interest rates since the 1960s. We have record numbers of people in work because private sector employment has increased by 1.25 million over the past five years. We remain the number one destination for foreign, direct investment into Europe.

I should like to make a further important point. It is to set the reforms to the merger regime in the context of the existing fair trading legislation and how it has operated. In practice, competition has been the principal factor in the UK merger policy for many years. In 1984, the then Secretary of State for Trade and Industry, the noble Lord, Lord Tebbit, announced that references would be made primarily on competition grounds. That has been a pursued by every subsequent Secretary of State. When one looks at the reports of the Competition Commission on mergers one finds that the employment effects and other non-competition effects of mergers, other than national security issues, are not matters that have determined decisions in recent years. Legislating for a focused competition test is not something which will make a large difference in practice to the way in which mergers are currently regulated.

Finally, I mention the mechanism of the Bill which provides for factors other than competition and national security being considered, should this prove necessary in the future. I shall explore that in more detail in a moment as regards Amendment No 131. It is worth noting in relation to this amendment that the power in Clause 57(3), together with the power of intervention set out in Clause 41, represent a careful balance. This amendment would tip that balance. As we have said before, we have no current plans to specify new public interest considerations. We have built in appropriate checks on the use of this power, which we believe are essential to preserve the predictability of the new regime. However, we also believe that the mechanism provides an important safety valve which will ensure that the very exceptional case can be dealt with appropriately. In the light of this explanation, I invite the noble Baroness to withdraw the amendment.

Baroness Turner of Camden

I thank the Minister for that explanation. He will not be surprised to learn that I find it disappointing because it has always been the case that competitiveness has been the sole criterion since the Tebbit test. That does not necessarily mean that it has always been right or that people have not suffered as a result of it being applied. In fact, we know of cases where that has happened. The policy that my noble friend has enunciated will not prevent the Government being lobbied when people believe that they are being disadvantaged. Quite obviously, people will make a fuss if they feel that they are being harmed as a result of decisions made within the criteria laid down in this Bill.

However, I do not intend to press the matter further now. I should like to think about it and then decide what further action I might wish to take at Report stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Davies of Oldham

I beg to move that the House do now resume. In moving the Motion, I suggest that we return to this business not before 8.30.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.