73.Clause 21(3) ensures that the Adjudicator will be a public authority for the purposes of the Freedom of Information Act 2000.
74.The intention of clause 21(4) is to apply the provisions of Part 9 of the Enterprise Act 2002 to the Adjudicator.
75.Part 9 of the Enterprise Act 2002 (which applies in addition to the prohibition on disclosure in clause 18 of the Bill) will prevent the Adjudicator from disclosing information which comes to the Adjudicator in connection with the exercise of his or her functions. There are a number of exceptions (usually referred to as gateways) set out in Part 9. These gateways include disclosure for the purpose of facilitating the exercise by the Adjudicator of any of his or her functions and disclosure to another person (such as the Office of Fair Trading) for the purpose of facilitating the exercise by that person of certain statutory functions.
76.Part 9 applies to many other public authorities exercising functions which are comparable with those of the Adjudicator. It already applies to the exercise by the Office of Fair Trading and the Competition Commission of their functions under the Groceries Supply Order.
77.The intention of clause 21(6) is to apply the Arbitration (Scotland) Act 2010 to arbitrations carried out by the Adjudicator, or a person appointed by the Adjudicator, pending commencement of that Act with that effect. See further the explanation above in relation to clause 2 of this Bill. Clause 21(6) does not have any other effect in relation to the Arbitration (Scotland) Act 2010.
78.The Adjudicator will be a corporation sole (paragraph 1). Being a corporation sole will ensure that the Adjudicator is able to enter contracts, and to sue and be sued, in his or her capacity as an office holder rather than any individual capacity.
79.Under paragraph 4, the Secretary of State may appoint a Deputy Adjudicator. Paragraph 5 allows any deputy to carry out any of the Adjudicators functions and this should provide flexibility if the Adjudicator is, for example, absent through illness or occupied with other functions. The Deputy will not have any separate functions and will be subject to the provisions of the Bill in carrying out any functions of the Adjudicator.
80.Under paragraph 6, the Adjudicator and any Deputy may each be appointed for an initial term of up to four years and for one or two further terms of up to three years. During a term the Secretary of State may dismiss a person if satisfied that the person is unable, unwilling or unfit to perform his or her functions. This is intended to be a relatively high threshold.
81.Although paragraph 8 allows the Adjudicator to pay remuneration and other amounts to the Adjudicator and any Deputy, the amounts are controlled by the Secretary of State.
82.The Adjudicator is not permitted to engage staff but, under paragraph 9, may make arrangements for staff to be seconded by the Secretary of State or any other public authority. This would be on arms length terms and would be likely to be by agreement as to the identity of the individuals in question.
83.Paragraph 10 requires the Adjudicator to make and publish procedural arrangements for dealing with conflicts of interest. If both the Adjudicator and any Deputy are unable to act due to a conflict of interest, under paragraph 11 the Adjudicator may require the Secretary of State to appoint an acting Deputy to deal with the matter in respect of which the conflict arises. Clause 2 of the Bill would enable the Adjudicator to appoint another person to act as arbitrator in a dispute where the Adjudicator would have a conflict, and so paragraph 11 is primarily intended to assist in relation to other functions such as the investigation function. It is relatively unlikely that the Adjudicator will need to use paragraph 11, but it provides a safeguard for the Adjudicator and the functions.
84.Paragraph 15 provides for the preparation of a statement of accounts for each financial year, and for these to be reported on by the Comptroller and Auditor General and laid before Parliament.
85.Paragraph 17 allows the Office of Fair Trading to provide staff, premises and other facilities to the Adjudicator. The Government intends that the Adjudicator will help to keep down costs by sharing premises and back office facilities with the Office of Fair Trading. This would be on arms length terms and subject to appropriate safeguards being in place to protect confidentiality, avoid conflicts of interest and so on.
86.Paragraph 18 protects the Adjudicator, any Deputy and any staff from claims for damages by third parties, except where they have acted in bad faith or in breach of human rights. In the absence of this protection it might, for example, be possible for a supplier or large retailer to claim against the Adjudicator in the tort of negligence in relation to some advice given by the Adjudicator or the way the Adjudicator had carried out an investigation. The Government intends that the Adjudicator should not be required to spend time and funding in dealing with such claims. The Adjudicator will be subject to the normal public law duties and constraints of a public authority.
87.The Adjudicator will have powers to require information for the purposes specified in Schedule 2. Paragraph 1(1) allows the Adjudicator to require information for the purposes of an investigation under clause 4. This power will be exercisable against large retailers and others, but only once an investigation is commenced. Paragraph 1(2) allows the Adjudicator to require information from large retailers for the purposes of monitoring whether a retailer has followed an earlier recommendation. This information could be used to help decide whether to commence an investigation.
88.In each case the Adjudicator may require a person to provide documents or other information, including orally (but not under oath). Paragraph 1(7) protects information that could not be required to be provided in civil proceedings, such as information subject to legal privilege.
89.Paragraphs 2 and 3 create offences for intentional failure to comply with a requirement to provide information (subject to a defence of reasonable excuse) and for knowingly providing false information.
90.The Government considers that financial penalties may not be necessary in order to secure a high level of compliance with the Groceries Code by large retailers.
91.The Secretary of State would need to authorise financial penalties by order under clause 9, approved by each House of Parliament (see clause 23).
92.Under paragraph 1 of Schedule 3, the Secretary of State could only make an order if, following consultation under paragraph 6, he or she thought the Adjudicators other powers (including recommendations and requirements to publish) were inadequate. The order would need to specify the maximum penalty that could be imposed or how to calculate the maximum: for example by reference to the retailers groceries turnover or the value of relevant supply arrangements. By delaying and leaving open the question of whether financial penalties are needed, clause 9 and Schedule 3 allow the Secretary of State to take into account the history of enforcement of the Groceries Code by the Adjudicator, together with the views of those affected.
93.The Adjudicator will have set-up and additional running costs, which are discussed in the Impact Assessment.
94.The Bill will have some impact on public service manpower as the Adjudicator will be staffed by individuals seconded either by the Secretary of State for Business, Innovation and Skills or by other public authorities. However, the impact will be small, given the nature and extent of the Adjudicators functions.
95.The Impact Assessment (IA) accompanying this Bill can be found online at http://www.bis.gov.uk/policies/business-law/competition-matters/market-studies/cc-market-investigation-on-the-uk-supply-of-groceries or in hard copy in the Vote Office (House of Commons) or Printed Paper Office (House of Lords). The IA has been cleared by the Chief Economist of the Department for Business, Innovation and Skills and by the Governments Regulatory Policy Committee.
96.The IA provides evidence to show that large retailers have significant buyer power when negotiating with suppliers and how the market has consequently been adversely affected. It explains why the establishment of the Adjudicator to monitor and enforce the Groceries Code of Practice is an appropriate response.
97.The IA estimates the costs of setting up the Adjudicator to be around 0.2m. The operational costs of the Adjudicator are estimated to be 0.8m per year. Retailers would incur their own costs as a result of responding to the Adjudicator carrying out investigations and these are estimated to be 120,000 per large retailer per year (that is 1.2 million per year in total). However, these costs may vary, depending on the number of investigations the Adjudicator chooses to carry out.
98.The benefits in creating an Adjudicator include potential improvements in investment and innovation within the groceries supply chain, which could ultimately lead to improvements in quality and choice for consumers, as well as lower prices in the long run. Although it has not been possible to quantify the potential improvement in investment and innovation and its consequent impacts, this will be monitored in the future and addressed as part of the Secretary of States review of the performance and effectiveness of the Adjudicator.
99.Specific impact assessments, including one relating to equality impacts, are considered in an annex to the Impact Assessment.
100.The Bill will not have a significant impact on the environment or carbon emissions.
101.Section 19(1)(a) of the Human Rights Act 1998 requires the Minister in charge of the Bill to make a statement confirming compatibility with the European Convention on Human Rights (ECHR).
102.Vince Cable, Secretary of State for Business, Innovation and Skills, has made the following statement:
In my view the provisions of the Groceries Code Adjudicator Bill are compatible with the Convention rights.
103.Although of the view that the Bill is compatible with the rights in the Convention, the Department has considered the arguments that might be made in relation to the potential engagement of such rights by the provisions in the Bill. The main arguments are identified below.
104.Clause 2 of the Bill supplements Article 11 of the Groceries Supply Order, which requires large retailers to submit to a request for arbitration by a direct supplier. This engages Article 6 ECHR (right to a fair trial) because the arbitration will involve a determination of civil rights and obligations of the relevant retailer and supplier.
105.The Adjudicator or any deputy carrying out an arbitration will be independent of the Government and of the parties and in most cases can be expected to carry out an arbitration impartially. Although one purpose of the Groceries Supply Order and the Groceries Code is to help rectify certain imbalances in the relationships between large retailers and their suppliers, the Adjudicator is to carry out his or her functions objectively and not as the advocate of suppliers. There are possible circumstances where the Adjudicator might have a conflict of interest or might be considered to have some bias, for example where the Adjudicator had had some previous involvement in the facts of the dispute. In such a case the Adjudicator would use the power in clause 2 to appoint another independent and impartial person to carry out the arbitration.
106.The parties to an arbitration will also be protected by the requirements for fairness and impartiality in the Arbitration Act 1996 and the Arbitration (Scotland) Act 2010.
107.ECHR Article 6 normally requires a public hearing. This is unusual in an arbitration as privacy is often regarded as one of the main advantages of arbitration. The Government expects that in most cases the parties to an arbitration under the Groceries Code will prefer their dispute to be heard in private, in which case this would be respected by the Adjudicator or other arbitrator. In an appropriate case the arbitrator or a court could require a public hearing, if necessary to comply with the human rights of a party.
108.Clause 3 enables the Adjudicator to obtain information about arbitrations which are not carried out by the Adjudicator, if this would assist the Adjudicator in carrying out his or her functions. This engages ECHR Article 8 (right to privacy), given that arbitrations will normally remain private. However, the benefit to the Adjudicator of improving his or her knowledge and expertise, which could then be applied generically to assist others, could be significant and can be taken into account under Article 8. The Adjudicator will be required to exercise the power in clause 3 so as to respect the human rights of the parties to arbitrations, and will generally be prohibited by clause 18 from disclosing information which would identify a party to an arbitration.
109.Schedule 2 enables the Adjudicator to require others to provide documents and information for the purposes of an investigation or for the purposes of monitoring whether a large retailer has followed a recommendation under clause 7. These powers engage ECHR Article 8 (right to privacy) because they could require a person to hand over documents and other information they would normally expect to be private. However, these powers are needed in order for the Adjudicator to carry out investigations effectively and to be confident as to whether recommendations are being followed (which may be relevant to a decision to commence a new investigation). These powers can be justified under Article 8 as being in the interests of the economic well-being of the country.
110.The Adjudicators investigation function, more generally, will also engage ECHR Article 6 (right to a fair trial) if the Secretary of State exercises the power under clause 9 to authorise the Adjudicator to impose financial penalties on a large retailer who is found to have breached the Groceries Code. A financial penalty will involve a determination of civil rights and obligations. Notwithstanding the Adjudicators independence and impartiality and the objectivity with which investigations will be carried out, it is not clear that the process of an investigation by the Adjudicator will necessarily have all the characteristics needed to comply with ECHR Article 6. This is essentially because the Adjudicator will here act both as investigator and decision maker. However, clause 9 provides a full right of appeal to the court against a financial penalty.
111.The other sanctions which may follow an investigation by the Adjudicator either do not engage ECHR Article 6 or, if they do, are compatible as a result of safeguards including the possibility of judicial review of a decision by the Adjudicator. Where the sanction is a recommendation to the retailer under clause 7, it is plain that Article 6 is not engaged as this does not have binding effect and is merely advisory. Where the sanction is a requirement for the retailer to publish information about the investigation under clause 8, it is more arguable that ECHR Article 6 is engaged. However, the findings of the Adjudicator in the investigation, and the publication of information about those findings, do not in themselves determine that the retailer has any particular obligation to a supplier under any relevant supply agreement which incorporates the Groceries Code. In particular, it would still be necessary for such a supplier to prove their case, and make a claim for damages or another remedy, through arbitration. Nor would the publication of a report by the Adjudicator be determinative of the reputation of a large retailer. If, on the contrary, an investigation leading to a requirement to publish did engage ECHR Article 6, then the ability for a court to judicially review the Adjudicators decision will be sufficient to rectify any failure by the investigation process to comply with ECHR Article 6.
112.In carrying out investigations, the Adjudicator will normally be prohibited by clause 18 of the Bill from disclosing the identity of a person who has complained to the Adjudicator about alleged breaches of the Groceries Code. Disclosure will be permitted if the complainant consents to this, or if ordered by a court. This protection for complainants is an important part of the Governments policy because the Competition Commissions 2008 report identified a climate of fear among suppliers around raising disputes with the large retailers. Even if a complainant were not itself a supplier, the identity of a complainant (such as a trade association active in a particular market or a whistleblowing employee who worked with particular suppliers) could implicate specific suppliers in the eyes of a large retailer. This protection of confidentiality raises issues under ECHR Article 6 because the normal presumption in a process such as an investigation would be that the person under investigation should be entitled to know the identity of persons making allegations against them.
113.However, whilst complaints may be the trigger for an investigation, the matters and material considered in an investigation are expected to be very wide ranging. The Government does not see it as the purpose of an investigation to decide whether to uphold a particular complaint, but rather to consider a pattern of behaviour by one or more retailers. The material relied upon by the Adjudicator is likely to be provided primarily by the retailer itself. This will diminish the importance of any particular complaint. It will be up to the Adjudicator, as a public authority, to conduct the investigation in a way which respects the rights of the retailer to a fair process. The Government therefore expects that it will not usually be possible for the Adjudicator to base findings of an investigation to any material extent on information provided by complainants whose identity is kept confidential from the relevant retailer. To the extent that a retailer considers that the Adjudicator has got such a decision wrong, there is the possibility of appeal to, or review by, the court, as described above.
114.Two aspects of the Adjudicators investigation powers also engage ECHR Article 1 of Protocol 1 (right to property). These are (1) financial penalties, if the Secretary of State authorises the Adjudicator to impose them under clause 9, and (2) the ability under clause 10 for the Adjudicator to require large retailers and complainants to pay the costs of an investigation in certain circumstances. Article 1 of Protocol 1 allows a state to enforce laws to control the use of property in the general interest. The Government considers that these powers are proportionate: in particular, the Secretary of State can only allow financial penalties if the Adjudicators other powers are considered inadequate, and must set a maximum penalty. The powers can also be justified by: (1) in the case of financial penalties, the need to deter large retailers from breaching the Groceries Code, in the interests of suppliers and (indirectly) consumers; and (2) in the case of costs orders, (a) the advantage of retailers found to have breached the Groceries Code paying a greater contribution to the Adjudicators costs than other retailers and (b) the need to deter vexatious and wholly bad complaints. In each case there is also the safeguard of a right of appeal to the court.
115.The Adjudicator will be funded wholly or mainly by a levy imposed by the Adjudicator on the large retailers. This engages ECHR Article 1 of Protocol 1, but again the Government considers that this is justified in the general interest. The alternative to funding by large retailers would be for the Adjudicator to be funded out of general taxation. But given that the background to the Groceries Supply Order and the Bill is the adverse effect on competition reported upon by the Competition Commission, the Government considers it fair that the cost will fall primarily on the large retailers.
116.There are also a number of safeguards in the Bill to help to ensure that the power to levy is exercised proportionately by the Adjudicator. These include the need for the Secretary of State to consent to the amount of any levy.
117.The Bill will come into force on such day as the Secretary of State may specify by order.