that action must be reasonable and practical.
The key word for our purposes in this debate is reasonable. Any decision to impose an order or request undertakings must be reasonable. It will almost always be unreasonable to attempt to impose an order on a party that is not a party to the merger to address a problem that has been caused entirely by the actions of the parties that are. If the commission tried to do that, the parties affected would undoubtedly have the decision reviewed by the Competition Appeal Tribunal, which would almost certainly caution it.
I am wary of being drawn into real-life examples, but I hope that I have given some comfort to the hon. Member for Twickenham (Dr. Cable), on his questions about the banking sector and insurance.
Mr. Waterson: I do not want to disappoint the Minister, but it is difficult to grapple with the provision in its present form without some real-life examples. The hon. Member for Twickenham, with a
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more vivid imagination than I, has come up with some thoughts, but
I, for the life of me, cannot imagine what the provision is getting
at. Why are those words in there, unless just through sloppy draftsmanshipas
we know, that never happens.
Mr. Alexander: I certainly concur with the hon. Gentleman on that point, despite the amendments that I have just tabled.
I hesitate to use real-world examples, given the individual commercial players, but I shall try to give a hypothetical example to give the hon. Gentleman the comfort that he seeks. When I looked at the material over the weekend, I asked officials for exactly such an example. The transfer of an exclusive distribution arrangement with a third party might form part of a merger situation. The Competition Commission might reasonably conclude that it must terminate part or all of that arrangement to remedy the substantial lessening of competition. The third party might consider it in its own interests to give undertakings regarding partial or complete termination of that agreement rather than see the merger blocked completely. Alternatively, were it reasonable to do so, and the Competition Commission decided to order a complete termination of the arrangement, an order might have to be made against both parties.
That possibility, that a third party be subject to undertakings or an order in certain circumstances, suggests that we should leave the clause as it stands. In conclusion, although I share the concern of hon. Members on both sides to protect third parties and limit the scope of the investigation of the merger in hand, I do not believe that the amendments are necessary. The legislation already provides effective protection for those third parties that we have discussed this morning and does so in a more flexible way. I therefore ask the hon. Member for Eastbourne to withdraw the amendment. If he does not, I shall ask the Committee to oppose it.
Mr. Waterson: Before the Minister gets heavy about it, of course I shall withdraw the amendment. I must say that I am still not wholly convinced. We might wish to return to the matter on Report. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 78 ordered to stand part of the Bill.
Order-making power where final undertakings nor fulfilled
Mr. Alexander: I beg to move amendment No. 187, in page 58, line 7, after "Commission" insert "or the OFT".
The Chairman: With this it will be convenient to take Government amendments Nos. 189, 190 and 194.
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Mr. Alexander: These amendments seek to clarify that where the OFT is given misleading information in negotiations about undertakings, that can be grounds for replacing undertakings with an order. An undertaking may be replaced with an order if it emerges that a party gave misleading information to the Competition Commission or the Secretary of State prior to agreeing that undertaking. Given that the OFT will also be involved in the negotiation of final undertakings and undertakings in lieu, it could be that a party receives the misleading information. We must make the changes to clarify that, where the OFT receives misleading information, that too is valid grounds for replacing an undertaking with an order. I ask the Committee to support the amendments.
Amendment agreed to.
Clause 79, as amended, ordered to stand part of the Bill.
Mr. Waterson: I beg to move amendment No. 261, in page 58, line 29, leave out subsection (2) and insert
`(2) The Commission may make such order as it considers to be reasonable and practicable
The basic effect of the amendment would be to remove subsection (2) and substitute the wording above, which is lifted straight out of clause 39(2), as hon. Members who are on the ball will have immediately spotted. The purpose is to prevent the remedies from being tied inexorably to the list in schedule 7. That repeats a more or less similar list in schedule 8 of the Fair Trading Act and so, I guess, represents accumulated experience of the remedies that are generally needed. That is not to say that they are necessarily exhaustive. Schedule 7 can be amended, which acknowledges the problem, but not with respect to a current case. If a problem does arise, it can be corrected only for future cases.
(i) to remedy, mitigate or prevent the substantial lessening of competition concerned; and
(ii) to remedy, mitigate or prevent any adverse effects which have resulted from, or may be expected to result from, the substantial lessening of competition.'.
The objective as set out in clause 78, for example, is to obtain voluntary undertakings where possible. That is clearly the policy: to deal with matters in a rather more consensual way. It is not limited by schedule 7 and is therefore entirely flexible. That is in the interest of both sides of the equation. A company may decline to give an undertaking when it knows that no equivalent power is available under schedule 7.
It is fair to say that there have been occasions when the OFT found a remedy could not be imposed. The Competition Commission talked about potential remedies at the end of its investigation and framed its report accordingly. The amendment reflects the
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more flexible power of the existing Competition Act 1998 under which the OFT, if it finds an infringement of the chapter 2 prohibition, can give appropriate directions to terminate it. The amendment is designed to import more flexibility into the provision and reflects the equivalent wording in clause 39(2).
Mr. Alexander: The amendment would have two effects. First, it would clarify that orders may be made only with a view to remedy, mitigate or prevent the substantial lessening of competition or any adverse effects resulting. Such orders should be reasonable or practical. Secondly, it would remove the reference to orders containing only remedies set out in schedule 7 for such supplementary consequential or incidental provision as is necessary.
With regard to the first effectI will come on to the points that the hon. Gentleman made thereafterI should clarify that the current wording in subsection (1) requires the Commission to act "in accordance with section 39" when making an order. Clause 39(2) specifies exactly what is set out in the amendment, namely that the Commission shall take such action under clause 80 as it considers reasonable and practicable to remedy, mitigate or prevent the substantial lessening of competition concerned or any adverse effects arising. We would therefore argue that there is no need for the same words to be written out in full in clause 80.
With regard to the second effect, the deletion of the reference to schedule 7, I wonder whether that was the hon. Gentleman's intention. I sense from his remarks that it was. That would allow the Competition Commission complete discretion, subject to their being reasonable and practical, in the remedies that they included in any final order. That would provide considerably more flexibility than the Secretary of State has at present, when final orders can include only remedies listed in schedule 8 of the Fair Trading Act.
We see the new schedule 7, which largely replicates the former schedule, as an important check on the power of the Competition Commission and want to retain subsection (2) of the clause as it stands. In light of the assurances that I have provided to the Committee, I hope that the hon. Gentleman will withdraw the amendment.
Mr. Waterson: I am grateful to the Minister for that explanation. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 80 ordered to stand part of the Bill.
Enforcement regime for public interest and special public interest cases
Question proposed, That the clause stand part of the Bill.
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Mr. Lansley: I do not want to detain the Committee for long. I made the following point yesterday in relation to a number of preceding clauses. At this stage, we are re-entering the structure of the Bill as it relates to special public interest cases. For that purpose, I am interested in the extent of the public interest. We have previously discovered, or at least I have discovered although some members of the Committee may have known this already, that the Secretary of State will be able to intervene in public interest cases to require a reference to be made, and will be able to make a reference even if the OFT has advised against it or has seen no adverse public interest.
The Secretary of State will, in effect, be able to disregard a report from the Competition Commission and proceed with accepting undertakings or making orders. A whole enforcement regime will flow from that, to a point at which it would be very kind of them to contemplate the thought that the OFT might advise them. There will be no further contemplation that the OFT's advice should be heeded by them in any way. As far as I can see, they will be entirely free to proceed as they think fit.
We have a complete structure from an initial intervention by way of specifying additional public interests that have to be considered all the way through to enforcement action, and at no point will the Secretary of State be formally constrained by the advice of the OFT or the decisions of the Competition Commission. I make that point because I want to put on record that the more I spend time on that matter, the more necessary it becomes for the Government to consider a different regime for any public interest case that does not relate specifically to national security. I shall leave special public interest cases out of that because we discussed them yesterday.
Mr. Alexander: I shall endeavour not to cover ground that, as the hon. Gentleman said, the Committee has already covered. Instead, I want to focus my remarks specifically on clause 81.
Clause 81 will bring into effect a separate but similar enforcement regime for those cases in which the Secretary of State decides to intervene. I should like to highlight the two main differences between the enforcement regime for the Secretary of State and that for normal merger cases. First, the Secretary of State's interim undertaking and order-making powers will cover the period before and after a reference. They will come into effect once the Secretary of State has introduced the intervention notice, which may be before or after the merger has been referred. Those are referred to as pre-emptive undertakings, in order to distinguish them from the OFT's initial orders and the Competition Commission's interim orders and undertakings.
Secondly, the Secretary of State will make the orders by statutory instrument. The OFT and the Competition Commission will make orders on their
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own authority because we believe that that is appropriate for independent
competition authorities. Unlike the Competition Commission, the Secretary
of State will continue to evaluate a merger on the basis of the public
interest test. Because Parliament is, of course, the guardian of public
interest, it seems appropriate that it will remain involved in approving
the Secretary of State's order on those matters. In future, all such
orders will be made under the negative resolution procedure. Previously,
any order involving divestment would have required an affirmative resolution.
Divestment is now treated like any other remedy in the main merger regime;
it is no longer treated separately.
To address a couple of points made by the hon. Member for South Cambridgeshire (Mr. Lansley), I confirm that it is our intention to ensure that the Secretary of State takes the final decision on cases that raise matters of public interest. However, he or she will be constrained by having to accept competition authorities' views on competition. Of course, the Secretary of State, rather than the OFT, will have a determinative role.