Clause 179 - Cartel offence

Enterprise Bill – in a Public Bill Committee am 4:15 pm ar 18 Ebrill 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry) 4:15, 18 Ebrill 2002

I beg to move amendment No. 77, in page 130, line 28, leave out 'dishonestly' and insert 'knowingly or recklessly'.

There is a substantial break in the proceedings, as we jump forward in the Bill to a later clause. This may be one clause on which it would be appropriate to have an extended stand part discussion. The clause introduces, for the first time, the principles of the criminalisation of cartels and prison sentences, which clearly needs extended discussion.

My amendment relates to a technical drafting point. I am not a lawyer, as was painfully apparent from one of my interventions yesterday, but I am advised that the terminology—specifically, the use of the word ''dishonesty''—could be improved on.

There are two points on which the Minister may be able to advise me. First, in comparable offences, the phrase ''knowingly or recklessly'' would normally be employed. It is not clear why the word ''dishonestly'' applies in this case. The second point is a matter of common sense, rather than a legal point. It is possible to envisage circumstances in which a group of people collude to create a criminal cartel whose motives may not be dishonest at all. People might want to subscribe to a cartel arrangement for many reasons: from weakness of character, because they are acting under pressure from a superior in their company, or from personal ambition disconnected from personal dishonesty. Many motives are possible, so the conventional phrase ''knowingly or recklessly'' better captures the spirit of what the Government are trying to achieve.

I hope to be persuaded that there are good reasons for using the word ''dishonesty'' in this context. If the amendment were accepted, consequential changes would need to be made, including to some of the other amendments to which I put my name. This is a

probing amendment related to the use of legal language.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

I associate myself with the words of my hon. Friend the Member for Twickenham. He does himself a disservice by saying that this is a minor and technical amendment, as it is a significant one in the context of a cartel offence.

On reading the clause, it seems to me that politicians won the battle against the lawyers on this occasion. As a lawyer turned politician, I am familiar with that dichotomy. A great deal of political force lies behind the idea of having to show dishonesty, whereas, as my hon. Friend said, the more regular or expected terminology would be something like ''knowingly or recklessly''.

Does the terminology really matter? I suggest that it does. Lawyers will enforce, judge and interpret the provision, and if one looks at it from a lawyer's perspective, one sees that there will be problems with proving dishonesty. Such a charge brings with it the need to establish a much more complex mens rea, or a guilty frame of mind.

If I were defending a client, I would say that it was not enough simply to show that he knew what he was doing and that the prosecution had to prove that he was acting dishonestly. I would say that it was possible to know something without there being dishonest intent. It is therefore possible to argue that the mischief at which we are striking will not be rectified.

As the provision stands, there will be problems with enforcement. As I said on Second Reading, the success or otherwise of the offence will be assessed according to the number of successful prosecutions. However, the Government risk weakening the offence by insisting on dishonesty. The phrase ''knowingly or recklessly'' is much more in line with other offences, and I commend it to the Minister for further consideration.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster 4:30, 18 Ebrill 2002

Unless the Minister has other plans, I find myself in the unusual situation of being on the Government's side. I strongly feel that reference should be made to a dishonest frame of mind. I would be very reluctant for the clause and other provisions in effect to criminalise individuals simply on the basis of reckless behaviour. That would be a dangerous step for the criminal law to take.

I shall no doubt speak at length about one or two of the other clauses that relate to this matter, because I have concerns about the idea of prison sentences and criminalisation. We at least need proof of dishonest intent, and recklessness is far too lax a term. I appreciate the comments made by both Liberal Democrat Members about the usual terminology, but such terminology often applies to civil, not fully fledged criminal offences. I therefore sincerely hope that the Minister will resist the amendment.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

I want to probe the matter a little further. Historically, there is no question but that cartels have acted against the interests of ordinary consumers. It is therefore important that get the law right, and it is right and proper to probe the matter.

I am not sure how to distinguish between dishonesty and the phrase ''knowingly and recklessly'', as applied to the conditions in (a) to (f). Are they the same? If so, there is no point substituting the phrase ''knowingly or recklessly''.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

I fear that we are in danger of counting angels dancing on the head of a pin. However, I suggest that if one can prove (a) to (f), one has something pretty close to dishonesty, although not necessarily. In those circumstances, the phrase ''knowingly or recklessly'' would be preferable.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

I am happy to seek advice from any quarter on this matter, because I think that we are dancing on the head of a pin. I am entirely unsure about the difference between the terms, and I am anxious that we get the terminology right. Clearly, (a) to (f) provide the grounds on which action will follow, but to make that reality, we must show people's intention. You used the word ''recklessly'', which could mean unintentionally. Do we need to prove that reckless behaviour has contributed to dishonesty? If that is the case, we really need an explanation from the Under-Secretary.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

If you are able to prove (a) to (f), why is it necessary to prove that it was done dishonestly? The issue of dishonesty is an extra burden on the prosecutor.

Photo of Derek Conway Derek Conway Ceidwadwyr, Old Bexley and Sidcup

Order. Before the hon. Gentleman replies, I should say that this afternoon the Committee seems to be slipping into terminology that is not consistent with procedure in the House. The hon. Gentleman may think that he is inviting Mr. Purchase to respond to something, but by using the word ''you'', he is inviting me to do so. I, of course, do not comment on the merits of the Bill.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

I do not want to push this much further. I am anxious to hear what my hon. Friend the Under-Secretary has to say. It is important for the Committee to understand whether, if there is a substantial difference between the two terms, we can adopt one or both or leave the measure unamended and be happy that, in terms of paragraphs (a) to (f), proving dishonesty is no more difficult than proving that an act was done knowingly or recklessly.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

First, the effect of the amendment—I hope that hon. Members are all aware of this—would be to widen the scope of the offence considerably. The Bill provides for a definition based on dishonesty in order to create a tightly defined offence. We think that that is important. Although there is no legal requirement for an exact correspondence between the new criminal offence and EC or domestic competition law, we would like there to be consistency. The dishonesty test is designed to achieve both these objectives; a tightly drawn offence and consistency.

Bona fide activity, or activity which would be exemptible under existing EC or domestic competition law, should not be caught in practice. This will be achieved first because the OFT will not prosecute a case where there is any real possibility that the agreement between the undertakings would be compatible with Community or domestic competition law; and secondly, because for a conviction, the court

must be convinced beyond reasonable doubt that the defendant acted dishonestly.

The sort of evidence that would point to dishonesty is likely to include a failure to seek legal advice, combined with attempts to disguise or hide activity. For example, holding secret meetings and the absence or destruction of records, and other such practices, would be instances of such evidence.

Dishonesty would be proved according to the well-established Ghosh test, which requires the jury to consider two questions. First, was what was done dishonest by the standards of reasonable people? Secondly, did the defendant realise that this was the view of reasonable people? The conduct is only dishonest if the answer to both questions is yes. In a criminal trial the answer must be yes beyond any reasonable doubt for dishonesty to be proved.

That means that the defendant must have believed his or her conduct to be wrongful in nature, in the sense of realising that reasonable people would regard it as such. For example, a defendant whose company had an exemption from the commission, or legal advice stating that the agreement would be exempt, could hardly be regarded as dishonest in concluding such an agreement. In other areas of the law juries have shown themselves to be well capable of identifying dishonesty using the test.

An offence based on knowing or reckless conduct, as is proposed by the amendment, would not be focused in this way. It would cover a much wider range of anti-competitive activity than the Government intend.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

I take the Under-Secretary's point but I wonder whether she overstates the case, because the measure would remain in the context of the agreements referred to in subsection (2). The offence would remain tightly focused.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

Notwithstanding the hon. Gentleman's point, we believe that the amendment would, for example, criminalise individuals who simply entered into a price-fixing agreement whether or not that agreement was already exempted, for example under EC law, and was therefore obviously a lawful agreement, and whether or not they have done so dishonestly, in the way I have described. It would also, for example, criminalise a business person entering an agreement on the basis of clear legal advice that it would be exempt under EC law.

We believe that a tightly drawn offence based on dishonesty is the appropriate definition for the new criminal offence. I think that that establishes the right focus on the wrongful nature of hard-core cartels. That is why we have selected the term ''dishonest'' in this context. I hope that I have explained to hon. Members, all of whom have contributed usefully to our discussion on the subject, why we have selected that word and that, in that light, the hon. Gentleman will withdraw his amendment.

Photo of Vincent Cable Vincent Cable Shadow Spokesperson (Trade and Industry), Liberal Democrat Spokesperson (Trade and Industry)

Through the exchanges that we have had, I have realised that this subject is rather more important than I appreciated when I introduced it. We

might want to refer to it again later or in another place. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I beg to move amendment No. 139, in page 130, line 31, at end insert—

''(1A) An individual is only guilty of an offence under subsection (1) if he dishonestly agrees with one or more other persons to make or implement or cause to be made or implemented agreements which fall within section 2 of the 1998 Act and do not meet the criteria in section 9 of the 1998 Act''.

Photo of Derek Conway Derek Conway Ceidwadwyr, Old Bexley and Sidcup

With this we may discuss the following amendments: No. 86 in page 130, line 32, leave out

''if operating as the parties to the agreement intend''.

No. 87, in page 131, line 20, at end insert—

''(8) It shall be a defence to the offence in section 179(1), if the arrangements in question:

(a) contribute to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:

(b) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;

(c) do not afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question''.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

Amendment No. 139 is designed to tie the offence for individuals to a substantive infringement of competition law in the 1998 Act. I take no kudos for drafting it; it was one of the amendments put forward by the joint committee of the Law Society and the Bar.

The amendment seeks to avoid the problem that arises in the Bill that an individual could be convicted where the agreement in fact qualifies for exemption under section 9 of the 1998 Act. It is not sufficient, the joint committee says, to rely on the prosecution's discretion not to bring proceedings in such a case. The individual should not be at risk in that way. Moreover, the formula proposed in the amendment would prevent prosecutions being brought in cases in which the economic impact was insignificant. That is because in order to fall within section 2, the anti-competitive agreements must have what is called ''an appreciable effect'' on competition.

The Government have argued that linking the offence to the substantive competition infringement will result in economic arguments being adduced that juries will find difficult to consider. That is simply unrealistic. Economic arguments will be adduced by an individual in his defence from time to time to demonstrate that he was not acting dishonestly or that similar conduct had been approved by the OFT or the commission in other cases. The amendment seems a workmanlike attempt to protect potential defendants in such cases.

Amendment No. 86 would delete the words

''if operating as the parties to the agreement intend''.

It is sponsored by the CBI, which takes the view—I think it has a point—that if those words were not deleted, it would appear that the offence could in

theory be committed even where the relative arrangements provided for in the agreement could not in practice lead to any of the consequences referred to in paragraphs (a) to (f). Should the agreement have any of those consequences unintentionally, the parties, presumably, would not be acting dishonestly.

Amendment No. 87, which is rather longer, is justified on the basis that if the cartel offence was finally introduced, the Government should, at the very least, entitle individuals to the right to rely on the provisions in article 81(3) of the EU treaty. It is true that the prohibition in that article relates to undertakings rather than to individuals, but as a matter of fairness, the same defence should be afforded under the UK regime. While I accept that the dishonesty approach taken by the Government has its merits, there should also be a provision modelled on article 81(3). I commend the amendments to the Committee.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

The amendments would alter the definition of the offence in several ways; perhaps I can take them in turn. In responding to amendment No. 86, it might be helpful if I summarised the intended policy effect of the introductory words to the clause:

''The arrangements must be ones which, if operating as the parties to the agreement intend, would''—

and so on. That wording reflects the policy intention to criminalise dishonest agreements between individuals and to do so independently of whether their agreement is actually implemented as they intend—or at all—by their respective companies.

Their intentions might not come to fruition. The companies might get wind of them and stamp on them. However, the individuals who reached the dishonest agreement would still have committed the criminal offence. That is right. The words that the amendment would remove clarify that policy intention. They do not provide for the criminalisation of agreements between individuals, if those agreements did not lead to their companies engaging in the types of activity described in paragraphs (a) to (f).

Amendment No. 87 would establish proof of the conditions for exemption in UK competition law as a statutory defence to the offence. The definition of the offence requires the prosecution to show that the agreement has been entered into dishonestly. That is likely to involve evidence of a failure to seek legal advice combined with attempts to disguise or hide activity, such as holding secret meetings and the absence or destruction of records.

In other words, the dishonesty approach is intended precisely to ensure that in practice bona fide business arrangements, which would be exempt under existing competition law, should be criminalised. Even within this definition, the prosecutors will wish to focus on the most serious cases where the dishonest intent of the parties is not in doubt.

Amendment No. 139 covers much of the same ground. It would provide directly that the offence would apply only to individuals who reached an agreement that would fall within chapter 1 of the

Competition Act 1998 and would not be subject to an individual or block exemption. The amendment would not introduce a statutory defence, but many of the points that I have already made apply here, too. The Bill provides for a definition based on dishonesty and thus creates a tightly defined offence. The proposed amendment would add a further test, namely that the underlying agreement should be anti-competitive under existing competition law. In practice, I would expect any agreement that was ''dishonest'' to fall within that category anyway.

Certainly, the Serious Fraud Office would not prosecute if the agreement were not contrary to competition law. However, there is a fundamental problem with establishing linkage to existing competition law. We have of course considered the approach of a definition based on a direct link to article 81 of the EC Treaty, or on chapter 1 of the 1998 Act, which comes to the same thing for these purposes. That option was set out in last year's White Paper alongside the dishonesty option. It is superficially attractive, but would present major problems. The prosecution would need to prove beyond reasonable doubt, in every case, that the agreement would constitute a breach of EC or UK competition law to the satisfaction of a lay jury. I do not think that it is a trivial matter. I hope that the hon. Member for Eastbourne was not trivialising the difficulties in his remarks. It would inevitably draw in complex legal and economic argument that is not appropriate for a jury trial. The dishonesty approach avoids the need for the prosecution—

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne 4:45, 18 Ebrill 2002

I appreciate the Under-Secretary's point about complexity, particularly with jury trials. However, we are talking about offences for which people can go to prison for five years, in theory. That issue will be canvassed at great length in the stand part debate. Surely it is correct that, where there are appropriate safeguards and defences that we can make available to people in the structure of the Bill, we should seek to do so. This is a good example, is it not?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

The dishonesty approach does avoid the need to prove the breach of EC law up front, but the defence can still argue that the agreement was exempt. That is an important fact to bear in mind about the way in which the provision is taken forward.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

That is precisely the point that I was making. As I understand it, if things are left as they are, the onus will be on the defence. Whereas the ''golden thread'', as it was once described, which runs throughout the English legal system is that the onus is on the prosecution in such cases, and it certainly should be, particularly when criminal sanctions are being imposed.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

Otherwise, if there were a direct link to EU law, which I think is what the hon. Gentleman is suggesting, the prosecution would be required to prove a breach of EU law in every case. He will understand that that would entail a lot of complex argument about economic competition of a sort that would make prosecution extremely difficult.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

I cannot foresee any circumstances in which prosecution would not be extremely

complicated, which is what we shall argue on clause stand part. The point is whether someone should go to prison for a cartel offence. Surely, the matter should be beyond reasonable doubt.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

The dishonesty approach avoids the need for the prosecution to prove up front that there has been a breach of UK or EU competition law. The Commission has told us informally that it favours the dishonesty approach. Of course, there will be complex arguments, but the issue is the degree of complexity. A tightly defined offence based on dishonesty is appropriate for the new criminal offence. That will focus the attention of courts, juries and the wider public on the wrongful nature of hard-core cartels—that is, dishonesty.

I hope that I have persuaded hon. Gentlemen that, even if he should want to reflect further on the matter, the amendment should be withdrawn. If not, I regret that I shall have to ask the Committee to oppose it.

Photo of Alistair Carmichael Alistair Carmichael Shadow Spokesperson (Energy and Climate Change), Liberal Democrat Spokesperson (Energy and Climate Change)

Had I been sharper off the mark, I would have intervened on the Under-Secretary.

The point that I want her to consider relates to a comment that she made about subsection (2), which states:

''if operating as the parties to the agreement intend''.

She seemed to be telling the Committee that once the agreement has been made, it does not have to be implemented. Has she—or her advisers—considered whether that is easily caught by the existing general criminal law of an attempted offence, which, clearly, would have been committed at that stage? The draftsmen may merely be reinventing the wheel.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

I need to seek advice on that. If I may, I shall write to the hon. Gentleman and circulate my letter to other Committee members.

On the hon. Gentleman's original question, I can confirm that he is right in his understanding of what I said: the agreement does not need to have been implemented to be caught. The making of the agreement is the offence. That is what matters, not whether it was implemented and that is what I said earlier.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I am grateful for the Under-Secretary's explanation. It will be painfully apparent that I have not been wholly convinced, but on the basis that she and her advisers will consider the matter further and that we may return to it later, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I beg to move amendment No. 88, in page 131, line 20, at end insert—

'(9) This section shall not enter into force until three years after the entry into force of the European Commission's reforms of Community competition law'.

The amendment would add an additional subsection to the clause reflecting the concerns of many people about a possible divergence between the regime in this country and in Europe. The Under-Secretary will be aware that business organisations such as the CBI are concerned that while EU modernisation reforms are going ahead apace, it is

slightly eccentric of this country to be ploughing its own furrow, not only so soon after the previous legislation, but when we are expecting EU reforms and a new European system. It would be sensible to allow that system to be introduced and bedded down and to see how it works in practice before we move ahead.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

Is the hon. Gentleman suggesting that we should always wait to implement measures until the EU has done so?

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

No, quite the opposite. It just seems to make enormous sense, particularly if we are trying to look after the interests of British business. If people have to adjust to diverging regimes, it would be an enormous burden on business, an extra cost and not very sensible. I do not think that I have ever been accused of being excessively communautaire, but it seems completely barmy to have two diverging systems affecting British companies or foreign companies operating in this country; hence, the timing in the amendment.

As we know, the Commission has plans to reform the situation. It is planning to share enforcement of the rules with the national competition authorities and the courts of each member state, and it hopes to ensure consistent application of the law by establishing a network between itself and the national competition authorities for the passing of information. We will deal with the passing of information in considerably more detail on the stand part debate.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East

The question of running two regimes is important. However, from the wording of the amendment, it seems that, if we should make such a law, it would control those relationships. Unless the hon. Gentleman believes that there could be an appeal based on a not yet implemented European law, why should we not offer this degree of protection, such as it is, earlier than our European counterparts and for once drive the train rather than be a passenger?

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

The hon. Gentleman's intervention is important and highly intelligent, as one would expect, but what is the point of moving in this direction if the rest of Europe, or the European regime, is moving in a different direction? We will come to this in much more detail when we discuss criminalisation.

An argument is that we are following what already happens in Europe by bringing in criminal sanctions. It is true that Austria and Ireland have anti-trust regimes that are part criminal, yet criminal sanctions have hardly ever been used in either jurisdiction. I am

told that in the first five years of the Irish competition Acts being in force, there was only one conviction, which I believe resulted in a fine of 1,500 punts—a princely sum. Presumably, the amount would be in euros now. The criminal sanctions in the French commercial code are rarely used, and the offence of bid rigging in Germany is seen principally as an anti-corruption not a cartel law.

There are also questions about whistleblowers, the seriousness of penalties as between large and small companies and as between the European and the domestic regimes. Again, I do not want to develop them now and have to repeat myself on stand part.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

The three-year period is relevant to European law, as my hon. Friend said, but also to the length of time since the Competition Act 1998 was introduced. The penalties imposed in that legislation have not yet been tested, and we do not know how well they will work. It would be better to have a three-year period to test the existing penalties before we rush ahead and introduce new ones.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

My hon. Friend makes a telling point. As I recall, we have an amendment further down the batting order that says that some of the Bill's provisions should not come into effect until 1 March 2005, exactly five years after the 1998 Act came into force on 1 March 2000. Most of industry and certainly the CBI are completely bemused as to why the Government are rushing to re-open some of the issues when they thought that they had been settled, at least for the time being, in the 1998 Act.

Whatever the issue—cartels, labelling, food standards or anything else—we owe it to businesses to give them some certainty over a reasonable period, so that they do not have constantly to update themselves, while trying to run their businesses on shifting sands.

Photo of Ken Purchase Ken Purchase Labour/Co-operative, Wolverhampton North East 5:00, 18 Ebrill 2002

Britain has been ahead of the game on competition law. Recently, we have been the equal of Germany on such law; many other European countries have not, particularly the Italians. It is of no surprise that the Europeans will need more time to implement this protection than we do. It is time for us to take the lead.

It being Five o'clock, The Chairman adjourned the Committee without Question put, pursuant to Order of the Committee [16 April ].

Adjourned till Tuesday 23 April at half-past Ten o'clock.