Clause 114 - Review of decisions under Part 3

Enterprise Bill – in a Public Bill Committee am 4:30 pm ar 1 Mai 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Amendment moved [this day]: No. 172, in page 81, line 5, leave out 'person' and insert 'party to a merger'.—[Mr. Carmichael.]

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

When time was called at 1 pm, we had established only that the amendment could be dealt with in short compass—but for the fact I had mislaid my notes.

The Confederation of British Industry describes the clause as one of the most damaging in this part of the Bill. However, subject to what else is said in debate, I intend this as a probing amendment. The CBI's concern is, I believe, well founded. The provision will leave any person who is aggrieved by a merger decision, and not merely parties to the merger, with a right to appeal against that decision. Once the decision has been taken to merge, one would normally expect a line to be drawn under the matter—it would be a clear-cut point at which the parties could continue to plan—but there will now be up to three months of uncertainty while third parties exhaust their rights of appeal.

The CBI says that that will cause unnecessary uncertainty to business, and that it will risk undermining the competition focus of merger control by placing excessive reliance on the views of competitors. The fact that the provision could undermine the commission's work is particularly worthy of the Minister's consideration. He may suggest that the three-month time limit will provide some sort of protection, but given that those three months will come at the end of what could be a fairly lengthy procedure, the time limit for the lodging of an application is not so much a protection but the cause of potential further injury to the interests of the businesses involved.

Photo of Jonathan Djanogly Jonathan Djanogly Ceidwadwyr, Huntingdon

There is an awful lot of sense in the amendment. Much damage could be done by allowing any person who was not a party to the merger to appeal against a decision of the Office of Fair Trading. It could become a charter for costs and expenses on the company, and for taking court cases and disrupting business. It could have significant ramifications. It is possible that the three months allowed for making an appeal could be tacked on to the conditions to the acquisition. Rather than acting as an appeal, it could slow down the process in every case.

Another significant problem could arise in insolvency cases, when it would be in the interests of customers and employees that the transaction should

be pushed through as fast as possible. The company could hold discussions with the OFT and come to an arrangement on how to move forward, but someone could disrupt all that by making an application under the clause. It could have significant consequences, and I would be interested to hear the Minister's response.

Photo of Andrew Lansley Andrew Lansley Ceidwadwyr, South Cambridgeshire

I am sorry to delay the moment at which my hon. Friend will hear the Minister's reply, but I must confess that I do not agree with the hon. Member for Orkney and Shetland (Mr. Carmichael). I hope that the Minister will say this anyway, but I shall put it on the record: it is not right to treat the views of competitors as something that should not carry weight. Competitors' arguments in relation to mergers are often precisely those that have a locus in relation to the competitive situation that would be created as a result of the merger, and they should have force. If we were to exclude persons who were not parties to the merger, we would arbitrarily exclude some of the very people who should have a power to appeal against some of the processes involved in making the decision.

If the amendment is not agreed, that will not necessarily mean that there will be a great deal of uncertainty. The hon. Gentleman will have seen schedule 3, paragraph (11)(a) and (b), under which the tribunal can rule that a person making a complaint does not have sufficient interest or has not disclosed valid grounds for an appeal. On that basis, I do not see that the uncertainty is a problem, unless it is an uncertainty that is well grounded and that might give rise to a valid appeal against a decision. I do not support the amendment.

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness)

Given that this is my first appearance under your chairmanship, Mr. Conway, it would be remiss of me not to say what a privilege it is to serve on the Committee. My official briefing indicates that the amendment seeks to limit the parties that can apply to the Competition Appeal Tribunal for a review of decisions made in a merger case to the parties to that merger. That would prevent third parties from having such decisions reviewed. What my official briefing does not indicate is that I am dangerously close to consensus with the hon. Member for South Cambridgeshire (Mr. Lansley). Given the spirit of partnership between our parties north of the border, I hesitate before disagreeing profoundly with the comments of the hon. Member for Orkney and Shetland. However, I have three reasons for taking issue with the amendment.

First, let me deal with the allegation of the hon. Member for Huntingdon (Mr. Djanogly), that this is somehow a charter for costs. We have already, as the hon. Member for South Cambridgeshire has kindly noted, limited who can bring a case to the CAT. The clause refers only to aggrieved parties; schedule 3 provides that tribunal rules may be made that allow for the CAT to reject proceedings either if it considers the person instituting them not to have a sufficient interest in the decision with respect to which they are brought or if the document instituting them discloses no valid grounds for their being brought. The rules can

also provide for the CAT to reject proceedings that it considers vexatious—we touched on that this morning.

Secondly, the hon. Member for Huntingdon mentioned timing. Let me reiterate, for clarification, that the period set down is the same as it is at present for judicial review. I shall explain the significance of that. Limiting the scope of the appeal would mean that the rights of third parties to seek judicial review and decisions in the High Court would remain. That would create a two-tier system in which merger parties had access to the CAT, and third parties relied on the High Court. I am not convinced that that would be consistent with the approach that we have developed throughout the Bill.

The third and substantive point on which I find myself at issue with the hon. Member for Orkney and Shetland is that there is a case for third parties to be able to review the proceedings, because some have a very clear interest. As the hon. Member for South Cambridgeshire said, customers, suppliers and competitors could all have their business prospects directly affected by a range of decisions taken by the authorities, from the clearance of a merger to the imposition of particular remedies.

Limiting appeals in the way proposed would run counter to the changes that we are making to the Competition Act 1998 in this Bill. Under clause 15, which we shall discuss shortly, third parties will be able to appeal directly to the CAT against decisions of the OFT where they have a sufficient interest in a case. The system as set out in the clause offers the right level of involvement for third parties. Those that can demonstrate a sufficient interest in the case and valid grounds to bring proceedings should be allowed to apply for decisions to be reviewed.

I am grateful to the hon. Member for Orkney and Shetland for suggesting that the amendment was probing, and I ask him to withdraw it.

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

It seems as though there is no dispute of substance. No one denies the right of third parties to be involved in the process, but the question is of striking the balance on where their involvement should be terminated. The view that I expressed in support of the hon. Member for Huntingdon was that termination should take place at the end of the decision procedure by the CAT.

There seems to be a great deal of sense in what the Minister says, and I appreciate that the subject has not been dismissed out of hand. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I want to deal briefly with the substance of the clause. The provision is for a review, not an appeal as such, and there is an important difference. It is another example of the split role of the Competition Appeal Tribunal, which in different guises is an appeal body and the equivalent of a court of first instance. We shall return to that issue.

I want to quiz the Minister a little about what the review will involve. There will apparently not be any re-hearing of the matter. The clause states that the CAT will use

''the same principles as would be applied . . . for judicial review'',

presumably in the High Court. I assume that only legal or procedural points could be taken up on such a review, and that the whole matter could not be re-heard ab initio. As the clause states, there is then the possibility of appeal

''on any point of law . . . to the Court of Appeal or''—

in Scotland—''the Court of Session''. Am I right to think that there would be no question of reconsidering evidence, and that the process would merely involve dealing with technical, legal or procedural points?

A slightly separate issue is the three-month limit. Subsection (3) is a little opaque. In any view, it states that there is a definite three-month limit, although subsection (4) states that the period can be modified. However, subsection (3) also mentions not bringing an application with ''unreasonable delay''. Even if someone brings an application within the clear three-month limit, can they still be held to be out of time—effectively struck out—for delay in bringing the application? There is confusion, so it would help if the Minister explained a little more clearly what was intended.

Photo of Andrew Lansley Andrew Lansley Ceidwadwyr, South Cambridgeshire

I tried to help the Minister before only to lull him into a false sense of security. I shall now try to disagree with him on the clause.

When I first considered the proposal for an appeal process in relation to decisions on merger control, I thought that it might be remotely akin to the appeal process in the 1998 Act. However, it is not, which is misleading. I am worried about the nature of the proposal. All that will happen is that what was previously a right of appeal against a decision by way of judicial review, which would have proceeded through the courts, is now to be an appeal on exactly the same type of grounds through the CAT.

As my hon. Friend the Member for Eastbourne (Mr. Waterson) pointed out, the appeal will not be on merit. In the 1998 Act, appeals are quite a different matter. Schedule 8 to that Act makes it clear that the tribunal can

''determine the appeal on the merits by reference to the grounds of appeal set out in the notice of appeal''.

It also says that it can quash the decision and substitute its own decision on whatever legal basis the Director General of Fair Trading wants to use. Such decisions are on merit, but decisions under the clause are not on merit at all. Appeals under the clause are only on the grounds of judicial review.

Is it reasonable in all circumstances of merger control—we shall come to market investigations later, as there is a parallel provision in clause 169—for there to be no appeal against the decision? The Competition Commission exercises its judgment after an initial decision by the Office of Fair Trading, so one could argue that there was a decision and an appeal.

I know of no substantive evidence to suggest that, in the course of decision making on mergers in the past, the Competition Commission has been thought anything other than competent to decide the merits of a decision. People would prefer the consistency and predictability of the Competition Commission acting as the mechanism to decide the merits of merger decisions.

I will not dispute the clause in so far as it relates to decisions on the merits of mergers on competition grounds. However, I shall flag up my problem with the clause, as I have done with problems on several other provisions, so that the Minister can think about whether he can deal with it as work on the structure of the Bill proceeds. My problem is with decisions made on merger control that are not on competition grounds. It will not surprise the Minister that I am exercised by the fact that the Secretary of State can intervene to specify public interest grounds other than national security, to require a reference even though the OFT does not believe that there should be one, to consider the decisions made by the Competition Commission and in effect set them aside, and to make orders if necessary—subject to Parliament's approval—to remedy any adverse public interest effects.

So far as I can see, at no point in that process can one honestly say that the Secretary of State is subject to any appeal. The provision proposes that she would not be subject to such an appeal. If she chose to go down a certain path, she could decide a merger on some grounds. The Secretary of State does not seem to meet all the desirable requirements of a distinction between the initiation of a process and its subsequent determination by an independent and impartial body.

The Secretary of State has told us—it is written on the front of the Bill—that the provisions are consistent with the European convention on human rights. We enjoy considering how that convention impacts on our proceedings, and I wonder whether the clause is entirely compatible with it. On the Competition Act, we discovered that the institution of an appeal in relation to the chapter II prohibition was the subject of the Napp Pharmaceuticals case, with which I am sure the Minister is familiar.

The CAT heard an appeal against the determination by the Director General of Fair Trading in that case, and in the course of its judgment considered the relationship between proceedings before the tribunal and article 6 of the convention. As the Minister will remember, article 6.1 is on the right to a fair trial and states:

''In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.''

So far as the chapter II prohibition and the penalties that flowed from it were concerned, the tribunal held that, for those purposes, there was a criminal charge or offence, but the European convention on human rights does not define criminal charge, which is effectively defined by the nature of the penalties involved. It did not affect the burden of

proof that was applied by the tribunal because the convention does not say what burden of proof should be applied to its proceedings, so we need not worry too much about that. However, in relation to the public interest considerations that were applied to the case, the nature of the penalties, undertakings or orders that apply to parties to a merger may be sufficiently substantive to bring such cases under article 6.1.

My personal view is that the Competition Commission is an independent and impartial tribunal, but where public interest considerations come into play, and the Secretary of State is effectively overriding the decisions of an independent and impartial tribunal, it is arguable whether the Secretary of State constitutes an independent and impartial tribunal for the purposes of the convention, especially in the light of his having issued the intervention notice in the first place. We should have another process, so that the Competition Appeal Tribunal can consider not only the judicial review decisions but an appeal on its merits, when a decision has been taken by the Secretary of State contrary to the decisions or advice of the Competition Commission.

Several points were put to Ministers in the White Paper consultation process, and the Government document that summarises the responses says:

''A few respondents suggested that the new merger regime should incorporate a right of appeal. One suggested this would be necessary whenever a divestment remedy was recommended. Others thought a robust appeals process was needed for all mergers and markets cases.''

I do not believe that an appeals process for all merger cases would be a good thing on balance because it would add a whole set of decisions by another body to those of the Competition Commission. However, the penalties in some cases may be so severe that some appeal mechanism is necessary. It is worth considering whether, in divestment cases, for example, where the order made has substantial effects on a business by requiring the separation of businesses rather than a more modest undertaking, there should be some threshold above which the enterprise could have its case heard again on merits by a further tribunal. Otherwise, notwithstanding the positive record of the Competition Commission and the Monopolies and Mergers Commission on these matters, it is possible that the Monopolies and Mergers Commission, as investigating body, could get carried away when it comes to the penalty. An investigation into the penalty, rather than a hearing of the whole case, might be considered.

Indeed, in the Napp Pharmaceuticals case, the Competition Appeal Tribunal supported the Director General of Fair Trading in his decision, except for the penalty, which it scaled back. There may be a risk in competition decisions—we will consider this again when we discuss market investigations—that the enthusiasm of the commission to demonstrate its pro-competitive credentials is so great that it may overestimate what is the appropriate penalty, undertaking or obligation to be laid on parties to a merger, and that the penalty might be scaled back when viewed on its merits by an independent tribunal.

In trying to deter anti-competitive mergers, the Competition Commission may go over the top in setting undertakings and obligations in the first instance.

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness) 4:45, 1 Mai 2002

I am grateful to the hon. Gentleman for his comments. If he had carried on any longer, I should have disappeared under a blizzard of helpful notes from officials replying to his various points. I am grateful, too, for his citing of the relevant clause of the European convention on human rights. My study of the law pre-dated 1997 and the assimilation of the convention into British law, so it was useful to have a recitation of it.

While bearing his remarks in mind, I shall resist the temptation to be drawn into discussions of a more substantive role for the Secretary of State. The Committee will have plenty of opportunities to address that issue in detail. By way of a courteous reply for the trouble that he has taken to raise these points, I refer him to the explanatory notes. Page 133, paragraph 762 states:

''Remedies imposed in merger and market investigation inquiries may engage rights under Article 1 of Protocol 1 to the Convention. However, such remedies may only be imposed for legitimate reasons in the general interest, and the Bill provides for fair and transparent procedures to be followed in such inquiries and a right of review to the CAT. The Government is satisfied that this approach is compatible with the Convention.''

It should go without saying that the position in which decisions are taken in the public interest is the same as for judicial review under the Fair Trading Act 1973. The Bill provides for an independent and fair hearing before the CAT, as described in the explanatory notes.

The hon. Gentleman asked why the CAT had been given its specific role. We created the new route of appeal to the CAT because it offers the prospect of a faster and less expensive access to justice.

Photo of Andrew Lansley Andrew Lansley Ceidwadwyr, South Cambridgeshire

Before the Minister leaves the point about the explanatory notes, I refer to the right of review. It is a right of judicial review alone, to investigate whether an error in law or procedural mistake has been made, or a breach of the proportionality or unreasonableness test. The review does not ask whether the merits of the remedies sought are in line with best practice under competition law, as with the Competition Act 1998. Will he comment on the scope of the review?

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness)

If the hon. Gentleman will indulge me, I will indeed go on to discuss the scope of the review. His point on that is mirrored in the clause.

The CAT offers a faster and less expensive route to justice than would be possible through the courts via a body expert in competition law and practice. The grounds of appeal will clearly mirror judicial review. The current case law suggests that those grounds may include errors of law or material or procedural error, such as the failure of an inquiry panel to comply with the chairman's procedural rules, and material errors as to fact and other material illegalities, such as unreasonableness or lack of proportionality.

The scope of judicial review in the courts has evolved over time and continues to do so following individual pieces of case law. We want the CAT's approach to reviews to mirror the principles applied to judicial review by the courts over time. That is why we have not opted to list the grounds for review in the Bill and chose instead the approach described in subsection (6), whereby the CAT will apply

''the same principles as would be applied by a court on an application for judicial review.''

A judicial review type appeal is appropriate for assessing decisions of the sort made under part 3. The CAT review will ensure that the procedures followed by the authorities were fair and that the parties were given the opportunity to put their case, and will further allow the CAT to assess whether a decision was reasonable and proportionate. That relates to the point about available remedies. I hope that I have covered the points made by the hon. Gentleman with regard to those remedies. The jurisdiction would allow scope in some circumstances for the CAT to consider whether a decision was based on a material error of fact.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne 5:00, 1 Mai 2002

Can we be clear about what the Minister is saying? If the CAT is able to consider matters of material fact, could there be a re-hearing of the original evidence to establish that in some circumstances? My understanding is that because it is a review and not an appeal it would not be open to the tribunal to do that.

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness)

My understanding is that the operation of the CAT would mirror the judicial review process that is under way in the courts at the moment. We would not seek to extend the CAT's remit beyond the terms of judicial review, but we are conscious of the fact that case law dictates the specific circumstances in which judges find a case appealable for judicial review. The Wednesbury ruling clearly set out the grounds for unreasonableness and in that regard a number of specific criteria have emerged in case law that allows for consideration.

For the sake of clarity, I affirm that the jurisdiction, which will mirror judicial review in the courts, will allow scope in some circumstances for the CAT to consider whether a decision was based on a material error of fact. That distinction between a material error of fact and a general review of the merits of the decision per se is important

On the substantive point about timing, subsection (3) requires applications to be brought without unreasonable delay and in any event within three months, as with judicial review in the courts. It is important that reviews are heard promptly and, if decisions are to be reassessed by the original decision-maker, that must be done quickly before the circumstances in which they were originally made change too much. The hon. Member for Eastbourne asked whether it would be possible within the three-month period for it to be deemed an unreasonable delay. I understand that that could be the case. For example, if within the three-month period a target was due to stop trading within a month, the time scale even

within that three-month interval could be deemed to be unreasonable. I hope that that answers the hon. Gentleman's question.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

The Minister has confirmed my worst fears. We all agree that when there is a review or appeal procedure of any sort, whether it concerns an industrial tribunal, competition law or whatever, there should be absolute clarity about the period within which the appeal—in this case the review application—should be lodged. It is axiomatic that in English law reasonable notice and a reasonable period are often thought to be three months, which is neatly mirrored by the clause, except in its earlier part where it suggests that an application could be made within three months and still be held to be out of time. That is dangerous and worrying and I hope that the Minister will agree at least to reconsider it with his departmental lawyers to find out if there is a way of clarifying that position. If the circumstances are as urgent and pressing as they might be in the sort of case he described, would there be some obligation on the OFT, the Secretary of State or the commission to state that they determine that the period should be a month, two weeks, six weeks or whatever so that people know exactly where they stand? Otherwise, people will get into a terrible fix, believing that they have a three-month time limit when in fact they are working to another time limit of which they were unaware.

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness)

I defer to the hon. Gentleman's knowledge of English law. I shall start from my understanding of and education in Scottish jurisprudence. We sought to reflect as closely and accurately as possible the terms of judicial review as presently justiciable before the courts. In that regard we had to strike an appropriate balance between what I concede would be the admirable clarity of a fixed date with the reality that in present case law under judicial review there is scope for it to be deemed unreasonable even within that timetable. Our endeavour has been to strike that balance and to reflect the circumstances outlined, but to make it clear that there is certainly a long-stop bar of three months. I have heard the point raised and, given its seriousness, I shall speak to my ministerial colleagues and lawyers.

Photo of Andrew Lansley Andrew Lansley Ceidwadwyr, South Cambridgeshire

Like my hon. Friend the Member for Eastbourne, I am not entirely comforted by the Minister's response. Ministers seem to have decided that the appeal process should be conducted by the Competition Appeal Tribunal and I recall that the Government's response to consultation was that the justification was that such decisions could be assessed not only more speedily—that is all to the good—but by those who are expert in competition law.

As we discussed earlier, the CAT for those purposes will consist of a senior lawyer, but the panel may consist of ordinary members whose expertise is essentially economic rather than legal. Yet the judgment that the tribunal is asked to make, which the Minister says that the Government have expressly tried to mirror, is not an economic, but a legal decision. Instead of asking the tribunal to focus on remedies, on whether they are genuinely proportionate as regards competition law, and on whether the remedy matches the problem economically, it is

asked to consider things in administrative law terms. I am not a lawyer, so there may be a point at which I stray beyond my competence.

If the Government want a tribunal that is expert in administrative law, they should set one up; it would certainly be subject to application for judicial review in the High Court. However, the Government are setting up a tribunal that is intended to be expert in competition law. At the same time, they are saying that experts in competition law, who understand the economic rationale of decisions by the Competition Commission, will not be able to examine the economic merits of the decisions. They must examine them in terms of administrative law and precedents in judicial review, where issues such as proportionality have a different meaning than they would have if one considered the remedies under review in relation to competition law—one would then consider the remedies' appropriateness and proportionality. There is a big difference.

It is good if the Government want to have a review of remedies, but that should be conducted in line with competition law on its merits rather than as an aspect of trying to mirror judicial review through the courts as part of administrative law.

Photo of Douglas Alexander Douglas Alexander Minister of State (e-Commerce & Competitiveness)

The hon. Gentleman poses a fair question.

We face a fundamental challenge. We must harness the economic expertise of the CAT, which is consistent with the hon. Gentleman's points and our thinking on what is the appropriate body for the highly complex financial and economic challenges that are often brought before the tribunal. However, we must also recognise that were there no provision for issues to be ventilated in a judicial review appeal, there would not only be a forum in which decisions could be reached on an economic basis, but there would be an entirely separate structure that would have to deal with questions of administrative law.

The balance has been more appropriately struck by ensuring that the membership of the body to which those appeals come—the Competition Appeal Tribunal—combines people of outstanding economic expertise, who are able to deliberate on highly complex matters, with someone who is legally qualified. At present, membership includes a High Court judge to ensure that expertise is brought to bear on deliberations. To be consistent with the Bill, we wanted to avoid unnecessary levels of appeal and costs for business, which I fear might be the outcome were the logic of the hon. Gentleman's position pursued. He wanted to have the CAT deliberate on competition law and the specifics of complex financial matters, and to have separate forums to deal exclusively with administrative law on the basis of judicial review.

The Government's approach is to recognise legitimate concerns about the areas of law covered by judicial review and to see that the appropriate forum in which those issues are determined is the CAT. The personnel of the tribunal will reflect the balance of its work, and it will have the capacity to deal with issues of administrative law and a significant

capacity to deal with issues of great financial complexity.

Question put and agreed to.

Clause 114 ordered to stand part of the Bill.