 House of Commons |
Session 1997-98 Internet Publications Other Bills before Parliament Arrangement of Clauses (Contents) |
| Competition Bill [H.L.]
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| EXPLANATORY AND FINANCIAL MEMORANDUM | |
| The Bill makes provision for strengthening competition law by introducing two main prohibitions. The first (the Chapter I prohibition) is in respect of agreements or concerted practices between undertakings or decisions by associations of undertakings (together referred to as "agreements") which have as their object or effect the prevention, restriction or distortion of competition within the UK. The second (the Chapter II prohibition) is in respect of the abuse by an undertaking or undertakings of a dominant position in the UK. Further provision is made for the specific prohibition of abuse of a dominant position by one or more national newspaper undertakings (the press diversity prohibition). The Chapter I and Chapter II prohibitions are closely based on Articles 85 and 86 of the EC Treaty. Provision is made for the prohibitions to be interpreted in accordance with EC case law. As a result a number of terms in the Bill such as "undertaking" are not defined. Their meaning will be that given by EC law. This is to enable the two regimes to apply in a consistent manner. | |
| The Bill provides for the new regime to be applied and enforced by the Director General of Fair Trading ("the Director"). The Director's main functions under the Bill, such as the power to make decisions, grant exemptions, investigate suspected breaches, and publish advice and information, are exercisable concurrently by the regulated utility Directors General in their respective sectors. | |
| These prohibitions will replace the Restrictive Trade Practices Act 1976, the Resale Prices Act 1976, the majority of the Competition Act 1980 and related provisions in other legislation concerned with competition. | |
| The Bill makes provision for the Director to be able to exempt agreements from the Chapter I prohibition if certain criteria are met. The Bill also makes provision for certain classes of agreement and conduct to be excluded from the scope of the two prohibitions. | |
| The Bill provides procedures by which undertakings can obtain guidance or a decision from the Director on whether agreements or conduct infringe the prohibitions. The Bill limits the ability of the Director to reopen the matter. | |
| The Bill gives the Director powers to investigate if there are reasonable grounds for suspecting that either the Chapter I or Chapter II prohibition has been infringed. He is empowered to require the production and explanation of documents, and to enter premises for this purpose. There is provision, if certain criteria are met, for the Director to be authorised by warrant to enter premises using such force as is reasonably necessary. There are safeguards in respect of unoccupied premises and against the production of legally privileged information. The Bill creates a number of criminal offences of obstruction or failing to comply with a requirement of the Director in various ways in relation to an investigation. | |
| The Bill enables the Director, where he has made a decision that agreements or conduct infringe the prohibitions, to give directions to the persons concerned to change or end the agreements or conduct in question. These directions are enforceable by a court order on the application of the Director. Civil penalties for infringement of the prohibitions may be imposed on undertakings by the Director. Immunity from penalties is given to "small agreements" and "conduct of minor significance" to be defined by secondary legislation. | |
| The Bill provides for the Director to make procedural rules in relation to functions under the Bill and requires him to publish advice and information on the application and enforcement of the prohibitions. | |
| Provision is made in the Bill to safeguard information obtained under it against unwarranted use or disclosure. | |
| The Bill creates a new institution, the Competition Commission. This will have two functions. First it will act as an appeal tribunal. Tribunals of the Competition Commission will hear appeals against a range of decisions taken by the Director in applying the prohibitions. Secondly the existing functions of the Monopolies and Mergers Commission will be transferred to it. | |
| The Bill provides for the strengthening of investigative powers in relation to monopoly investigations and for extending by order the scope of the power to investigate monopolies to services relating to the use of land. | |
| The Bill provides power for the Director, when assisting the European Commission in conducting investigations into breaches of EC competition law, to obtain a warrant to enter and search premises using such force as is reasonably necessary. This is subject to the satisfaction of certain criteria. | |
| The Bill creates a number of new offences in connection with the above provisions for which the penalty on summary conviction is the statutory maximum (currently £5,000). | |
| PART I | |
| CHAPTER I | |
| Chapter I contains the Chapter I prohibition and the provisions associated with it. | |
| Clause 1 repeals existing legislation in respect of restrictive trade practices and resale price maintenance. | |
| Clause 2 contains the Chapter I prohibition which prohibits agreements, decisions and concerted practices between or by undertakings and associations of undertakings which are implemented in the UK and the purpose or effect of which is the prevention, restriction or distortion of competition in the UK. It contains an illustrative list of instances of such agreements taken from Article 85 of the EC Treaty. | |
| Clause 3, which introduces provisions of Schedules 1, 2, 3 and 4, excludes certain specified types of agreements from the prohibition and enables the Secretary of State by order to amend Schedules 1 and 3 in relation to the exclusions. | |
| Clause 4 empowers the Director to grant an individual exemption to particular agreements which meet specified criteria, subject to conditions or obligations and for such specified periods as the Director may determine. | |
| Clause 5 empowers the Director to cancel an individual exemption or alter the conditions or obligations attaching to it, in certain circumstances. | |
| Clause 6 empowers the Secretary of State, acting on a recommendation of the Director, by order to exempt categories of agreement from the prohibition (block exemptions). | |
| Clause 7 enables a block exemption order to provide for an agreement which does not qualify for a block exemption, but which satisfies specified criteria and has been notified to the Director, to be treated as falling within a block exemption unless the Director opposes its being so treated. | |
| Clause 8 provides for the procedure which the Director and the Secretary of State are to follow in making block exemption orders. | |
| Clause 9 sets out the criteria for individual and block exemptions. | |
| Clause 10 confers exemption from the prohibition for agreements which are exempt from the prohibition in Article 85 or would be so exempt if they affected inter-state trade. | |
| Clause 11 empowers the Secretary of State to make regulations exempting certain agreements which are subject to special transitional provisions of the EC treaty. | |
| Clause 12 introduces Schedule 5 which provides for the procedures to be followed when a person seeks guidance or a decision as to the application of the prohibition. The clause also empowers the Secretary of State by regulations to make provision as to the application of Clauses 13 to 16 and Schedule 5 in certain circumstances. | |
| Clause 13 enables a party to an agreement which might infringe the prohibition to notify the Director and to apply to him for guidance. The Director may give guidance as to whether or not the agreement is likely to infringe the prohibition, whether it is likely to be exempt or whether he would be likely to grant it an individual exemption. | |
| Clause 14 enables a party to an agreement to apply to the Director for a decision as to whether it infringes the prohibition and if it does not whether that is because the agreement is exempt or excluded from the prohibition. | |
| Clause 15 limits the power of the Director to take further action in respect of an agreement where he has given guidance under Clause 13 that the agreement is unlikely to infringe the prohibition. | |
| Clause 16 limits the power of the Director to take further action in respect of an agreement where he has made a decision under Clause 14 that an agreement does not infringe the prohibition. | |
| CHAPTER II | |
| Chapter II contains the Chapter II prohibition and the provisions associated with it and the press diversity prohibition. | |
| Clause 17 repeals parts of the Competition Act 1980 relating to anti-competitive practices. | |
| Clause 18 prohibits the abuse of a dominant position in the UK or a part of it where this affects trade within the UK. It contains an illustrative list of conduct which may constitute an abuse, taken from Article 86 of the EC Treaty. | |
| Clause 19 prohibits the abuse of a dominant position on the part of one or more national newspaper undertakings which may reduce the diversity of UK national newspaper press by reducing, retarding, injuring or eliminating competition. | |
| Clause 20 introduces provisions of Schedules 1 and 3 which exclude certain specified types of conduct from the Chapter II prohibition and allow the Secretary of State to amend Schedule 1 and paragraph 8 of Schedule 3 by order. | |
| Clause 21 introduces Schedule 6 which provides for the procedures to be followed when a person seeks guidance or a decision as to the application of the Chapter II prohibition. | |
| Clause 22 enables a person to apply to the Director for guidance as to whether conduct is likely to infringe the Chapter II prohibition. | |
| Clause 23 enables a person to apply to the Director for a decision as to whether conduct has infringed the Chapter II prohibition. | |
| Clause 24 limits the power of the Director to take further action in respect of conduct where he has given guidance under Clause 22 that conduct is unlikely to infringe the Chapter II prohibition. | |
| Clause 25 limits the power of the Director to take further action in respect of conduct where he has made a decision under Clause 23 that the conduct is unlikely to infringe the Chapter II prohibition. | |
| CHAPTER III | |
| Chapter III makes provision for investigation and enforcement of the Chapter I and Chapter II prohibitions. | |
| Clause 26 specifies the circumstances in which the Director may exercise the powers in Clauses 27 to 29 to conduct an investigation into the suspected breach of either prohibition. | |
| Clause 27 confers on the Director power to require the production of specified documents, to take copies of them, to require explanations to be given and to require information about documents that are not produced. | |
| Clause 28 empowers an authorised officer of the Director to enter premises for the purposes of an investigation and to require the production of documents, to take copies of them, to require explanations to be given and to require information about documents that are not produced. | |
| Clause 29 empowers an authorised officer of the Director to obtain a warrant to enter premises by force if necessary, to search premises and to take copies or possession of documents that have not been produced when required under Clauses 27 or 28 or which he fears would be concealed, tampered with or destroyed if he required their production under those clauses. The officer may require explanations of them. | |
| Clause 30 provides for matters supplementary to the entry of premises under a warrant, including information about the investigation to be given in the warrant, the production of the warrant and the procedure to be followed where the premises to be entered are unoccupied. | |
| Clause 31 excludes from the powers to require the production of documents or the giving of explanations information which is subject to legal professional privilege. | |
| Clause 32 requires the Director when he proposes (following an investigation by him) to make a decision that either the Chapter I or the Chapter II prohibition has been infringed to give notice to persons affected giving them an opportunity to make representations. | |
| Clause 33 empowers the Director, where he has made a decision that an agreement infringes the Chapter I prohibition, to give directions in writing requiring the parties to terminate or modify the agreement. | |
| Clause 34 empowers the Director, where he has made a decision that conduct infringes the Chapter II prohibition, to give directions in writing requiring the person concerned to terminate or modify his conduct. | |
| Clause 35 provides that, where a person fails to comply with a direction under Clause 33 or 34, the Director may apply to the court for an order compelling the person to rectify his default. | |
| Clause 36 allows the Director, where he has a reasonable suspicion that either the Chapter I or the Chapter II prohibition has been infringed (pending completion of an investigation) to impose interim measures which he considers necessary to prevent serious, irreparable damage to a person or category of persons or to protect the public interest. | |
| Clause 37 empowers the Director to impose on a party to an agreement which infringes the prohibition of anti-competitive agreements, or an undertaking whose conduct infringes the prohibition of abuse of dominant position a penalty not exceeding 10% of the turnover of the undertaking. | |
| Clause 38 allows the Director to recover as a civil debt a penalty awarded under Clause 37 which has not been paid by the due date, unless an appeal is pending. | |
| Clause 39 requires the Director to publish guidance which he, the tribunal and a court must have regard to in determining the level of penalty in any particular case. | |
| Clause 40 makes parties to "small agreements" (defined by secondary legislation by reference to criteria which may include turnover and market share) immune from the imposition of penalties for breach of the Chapter I prohibition. The Director is given power to withdraw the immunity. | |
| Clause 41 makes persons whose conduct infringing the Chapter II prohibition is of "minor significance" (defined by secondary legislation by reference to criteria which may include turnover and market) immune from the imposition of penalties for breach of the Chapter II prohibition. The Director is given the power to withdraw the immunity. | |
| Clause 42 gives immunity from penalties for breach of the Chapter I prohibition where an agreement has been notified to the European Commission for the purpose of seeking an exemption from Article 85 of the EC Treaty. | |
| Clause 43 makes it an offence for a person to fail to comply with a requirement imposed on him in an investigation by the Director under Clause 27, 28 or 29, or intentionally to obstruct an officer exercising powers of entry under Clause 28 or 29. | |
| Clause 44 makes it an offence to destroy or falsify documents which are required to be produced under Clause 27, 28 or 29. | |
| Clause 45 makes it an offence for a person knowingly or recklessly to provide false or misleading information to the Director in respect of any of his functions under Part I, or to another person, knowing that it will be used for that purpose. | |
| CHAPTER IV | |
| Clause 46 provides for the dissolution of the Monopolies and Mergers Commission and the transfer of its functions to a new body, the Competition Commission. It introduces Schedule 7 which makes further provision about the Competition Commission. | |
| Clause 47 makes provision for appeals to the Competition Commission by parties or persons in respect of decisions taken under Part I of the Bill. It introduces Part I of Schedule 8 which makes further provisions about appeals. | |
| Clause 48 provides that third parties with a sufficient interest, and bodies representing such persons, may apply to the Director for him to withdraw or vary certain decisions. Appeals lie to the Competition Commission. | |
| Clause 49 provides for appeals to be heard by appeal tribunals of the Competition Commission and for rules on appeals and appeal tribunals to be made by the Secretary of State. It introduces Part II of Schedule 8 which makes further provision about rules. | |
| Clause 50 provides for appeals on a point of law or the amount of a penalty to be made to the Court of Appeal, or, in relation to Scotland, to the Court of Session or, in relation to Northern Ireland, to the Court of Appeal in Northern Ireland. | |
| CHAPTER V | |
| Clause 51 and Schedule 9 enable the Director, with the approval by order of the Secretary of State, to make rules about procedural matters under Part 1 of the Bill. | |
| Clause 52 requires the Director to publish general advice and information about the application and enforcement of the prohibitions. | |
| Clause 53 permits the Director to charge fees for the exercise of functions as may be specified in rules. | |
| Clause 54 introduces Schedule 10 which provides for the Directors General in the regulated utility sectors to exercise concurrently most of the functions of the Director under Part I in relation to their sectors. | |
| Clause 55 prohibits the disclosure of information obtained under Part I of the Bill otherwise than as permitted by the clause. It introduces Schedule 11 which contains a list of authorised persons and functions to whom and for which disclosure may be made. Unauthorised disclosure is an offence. | |
| Clause 56 restricts the disclosure of confidential information about individuals or businesses. | |
| Clause 57 confers absolute privilege in respect of defamation on the Director in respect of his advice, guidance, and decisions etc. | |
| Clause 58 provides for findings of fact made by the Director in deciding certain questions to be capable of being relied on in civil proceedings unless the court directs otherwise. | |
| Clause 59 defines various terms used in Part I of the Bill. | |
| Clause 60 makes provision for the interpretation of the provisions of Part I of the Bill in a manner not inconsistent with the principles and case law which would apply to a like matter under EC law. | |
| PART II | |
| Part II provides for a procedure under which a warrant authorising forcible entry and search can be obtained in connection with certain EC competition investigations. | |
| Clause 61 defines various terms used in Part II. It also confers on officers of the Director in certain circumstances the same powers of investigation as are exercised by European Commission officials carrying out EC competition investigations. | |
| Clause 62 empowers the Director or a person acting on his behalf, where European Commission officials are carrying out an EC competition investigation, to obtain a warrant to enter premises and to search for certain books or records where the European Commission investigation is being obstructed or is likely to be obstructed. | |
| Clause 63 confers on the Director similar powers where he is himself conducting an investigation on behalf of the European Commission. | |
| Clause 64 provides for matters supplementary to the entry of premises under a warrant, including information to be given in the warrant, the production of the warrant and procedure to be followed where the premises are unoccupied. | |
| Clause 65 makes it an offence for a person intentionally to obstruct any person in the exercise of his powers under a warrant issued under Clause 62 and Clause 63. | |
| PART III | |
| Clause 66 strengthens the Director's existing investigative powers in respect of monopoly investigations under the Fair Trading Act 1973. | |
| Clause 67 increases the penalties for persons wilfully or recklessly failing to comply with a requirement to furnish information. | |
| Clause 68 enables services which consist in the making of arrangements in connection with the use of land to be made subject to the monopoly provisions of the Fair Trading Act 1973. | |
| PART IV | |
| Clause 69 repeals specified provisions of the Patents Act 1977 relating to restrictive conditions in contracts as to patented products. | |
| Clauses 70 to 72 make supplemental provision, in particular to provide for procedure to make orders and regulations, the application of offences to bodies corporate and the application of the Bill to the Crown. | |
| Clause 73 introduces Schedules 12, 13 and 14 dealing with minor and consequential amendments, transitional provisions and for the repeal of certain enactments. | |
| Clause 74 empowers the Secretary of State to make by order incidental, consequential, transitional or supplemental provision. | |
| Financial Effects of the Bill | |
| The Bill provides for new functions to be carried out by the Director. The additional expenditure required to perform these functions will be partially offset by reductions in expenditure resulting from the abolition of the Director's functions under the Restrictive Trade Practices Act 1976 and related Acts, the Resale Prices Act 1976 and parts of the Competition Act 1980. | |
| In addition it is expected that there will be savings resulting from a reduction in the number of investigations and referrals by the Director under the monopoly provisions of the Fair Trading Act 1973. There may be some additional expenditure involved with the exercise of the sector regulators' concurrent powers under the Bill. However, any such additional costs are expected to be marginal, with costs being absorbed to a large extent within existing expenditure on competition scrutiny by the regulators under their existing functions. | |
| The Bill provides for the establishment of the new Competition Commission. The Commission will take over the existing functions of the Monopolies and Mergers Commission and will incorporate a new tribunal function to hear appeals against the Director's decisions under the prohibitions. The existing staff and members of the MMC will become staff and members of the Competition Commission. The existing Chairman and Deputy Chairmen of the MMC will become the Chairman and Deputy-Chairmen of the Commission. The new tribunal function of the Commission will involve additional expenditure, although it is expected that this will be partially offset by savings derived from a reduction in referrals to the Commission under the monopoly provisions of the Fair Trading Act. | |
| The net additional expenditure involved in the new functions of the Director, the sector regulators and the Competition Commission will be dependent to a large extent on the number of notifications and appeals made under the new regime. It is estimated that the additional expenditure involved will be about £6.5m annually, taking into account the offsetting savings referred to above. | |
| Savings will result from the abolition of the Restrictive Practices Court. There may be offsetting additional workload on the courts arising from private actions for civil damages under the Bill, and appeals to the Appeal Courts against decisions of the tribunal on points of law or the level of penalty. However, while the Director is expected to be the principal enforcer of the prohibitions, the workload on the courts under the new regime is difficult to predict. | |
| Clause 53 provides for the Director and the sector regulators to charge fees of specified amounts in connection with the exercise of functions under the Bill. The amounts must be specified in rules made by the Director and approved by an order made by the Secretary of State under Clause 51. Clause 49 provides for the Secretary of State to make rules with respect to appeals and the appeal tribunal. Schedule 8 provides for these rules to provide for fees to be charged in respect of the costs of proceedings before the tribunal. No decision has been made as to whether fees should be charged under the provisions referred to above. | |
| Clause 37 provides for the Director, or sector regulators, to require undertakings to pay a penalty if he has decided that the undertaking is in breach of either the Chapter I or Chapter II prohibitions. No penalty may exceed 10% of the turnover of the undertaking. | |
| Effects of the Bill on public service manpower | |
| It is estimated that the new functions provided for in the Bill will involve a net increase in the staff of the Director of about 50. | |
| The tribunal function of the Competition Commission will involve some additional manpower requirements, both staff and members of the Competition Commission. This may be offset to some extent by savings associated with the Commission's functions in relation to the monopoly provisions of the Fair Trading Act. Schedule 7 provides for members of the Commission to be appointed to form a panel for the purposes of the Commission's functions in relation to appeals, and for one of these to be appointed as President of the tribunal. However, the level of additional manpower required for the operation of the tribunal function of the Competition Commission will depend to a considerable extent on the number of appeals made against the Director's decisions. | |
| Compliance cost assessment | |
| In terms of recurring costs, it is estimated that the impact of the new regime is likely to be minimal - with a compliance cost estimate ranging between a reduction of £2.2m and an increase of £4.0m. It is estimated that the non-recurring compliance cost to business of the proposed Bill will be between £2.6m and £4.4m. | |
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| © Parliamentary copyright 1998 | Prepared 10 March 1998 |