Enterprise Bill

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The Chairman: With this it will be convenient to take the following amendments: No. 279, in page 64, line 13, leave our subsection (9).

No. 280, in clause 91, page 64, line 18, leave out subsection (1).

No. 281, in clause 91, page 64, line 21, leave out subsection (2).

No. 282, in clause 91, page 64, line 23, leave out subsection (3).

No. 283, in clause 91, page 64, line 28, leave out "also".

No. 284, in clause 91, page 64, line 31, leave out "also".

No. 285, in clause 91, page 64, line 34, leave out subsection (6).

Mr. Djanogly: I should like the Minister to clarify a particular issue when he responds to the amendments. If a divesture order is implemented and a company goes into a sale process and appoints agents but no buyer appears, in what circumstances does the Minister envisage a claim under subsections (3) and (4), as they are currently constituted, and bearing in mind subsection (5)? That will be a relevant consideration and concern for businesses.

There are further concerns behind the wish to delete subsections (3) and (4). We are discussing any one person being able to mount an action. Again, that will lead to uncertainty for companies. Whether an undertaking has been breached may itself be subjective and open to interpretation. That could be used by a single person as a means of causing vexatious actions against the company; or a few customers out of several thousand might decide to use those provisions in that way.

Mr. McWalter: Will the hon. Gentleman confirm that he basically agrees that the whole principle of giving undertakings is a good idea and a progressive way forward, although it could go wrong?

Mr. Djanogly: The principle of undertakings is one that I accept and it is unnecessary to remind the hon. Gentleman that the concept is not new. It is currently used—often constructively. It can be less formalistic than going through all the other procedures. I am talking about the ability of unconnected individuals to bring an action against a company for a breach of

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that undertaking. It is a question of who should have a claim. If subsections (3) and (4) were used in the wrong way, they could in effect be a way of blackmailing a company. On the basis that it is likely that the Minister is going to oppose the amendments, does he agree that it would be correct to insert some form of de minimis mechanism to ensure that a small number of people cannot blackmail a company?

Mr. Alexander: The amendments seek only to allow the Competition Commission, the OFT and the Secretary of State to bring civil proceedings to enforce undertakings, orders and statutory restrictions on further integration and share acquisition. I understand the hon. Gentleman's concern that it might be too easy for people to bring actions in the courts, which would lead to a rise in unnecessary litigation and subsequent costs to business, but I am not convinced that the provisions would have that effect.

The FTA refers to any persons bringing civil proceedings in respect of any failure or apprehended failure of the person responsible to fulfil the undertaking in section 93(2) of that Act, and applies similarly to any persons bringing civil proceedings in respect of any contravention or apprehended contravention under that section. The breadth of the provisions has been limited by the judgment on the merger involving Mid Kent Holdings in 1997. In the light of that judgment, we decided in drafting clauses 90 and 91 not to provide for any person to bring an action.

We will allow only those persons who sustain loss or damage as a result of any breach of an undertaking, order or statutory restriction to bring an action. That means that people directly affected by the failure of a party to comply with its obligations will be able to bring an action. That will provide an appropriate balance and address some of the concerns about the need to ensure that there is an appropriate standard before an action is brought.

Although the statutory restrictions were not enforced in that way under the FTA, the restriction on integration is new and there are no grounds for treating it differently from undertakings or orders. Notwithstanding my previous profession as a Scottish lawyer, like other Government Members and Opposition Members, I am keen to avoid an overly litigious system, but we must strike the right balance between protecting the parties from undue interference and cost, and allowing those parties with a genuine grievance access to redress. The formulation in clauses 90 and 91 achieves that balance.

I must admit to the Committee that I did not follow the logic of the hon. Gentleman's first point, but if I failed exactly to comprehend it, I would be happy to write to him.

Mr. Djanogly: At the start of the sitting, I pointed out that subsection (5) would stop a vexatious

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litigation claim in circumstances in which a company did its best to divest. It would be helpful if the Minister dealt with that because it would give some comfort to business, which will be concerned by those provisions.

I should like the Minister to comment on the slightly broader proposal that I made in my opening remarks. If he does not accept our amendments, does he not believe that there should be some limit on a minimum claim level—perhaps not as specifically put in the amendments—or a de minimis mechanism that would come into play to ensure that claims that were taken up were serious, which would reduce the threat to business of claims being made for the sake of it?

Mr. Alexander: I hope that I can offer the hon. Gentleman reassurance. The terms of the Fair Trading Act 1973 are the basis on which we move forward. I sought to ventilate in my earlier remarks that we have tried to limit the scope of those capable of bringing such litigation. We have been alive to concerns about an over-litigious system, which is why the scope has been narrowed. We have more of a meeting of minds over the outcome than the hon. Gentleman suggests, but I shall be happy to write to him on the issue of vexatious litigants and how the clauses address that.

12 noon

Mr. Djanogly: I thank the Minister for his response, and I hope that businesses take comfort from the Government's attitude to unnecessary litigation. I beg to ask leave to with draw the amendment.

Amendment, by leave, withdrawn.

Clause 90 ordered to stand part of the Bill.

Clauses 91 and 92 ordered to stand part of the Bill.

Clause 93

Period for considering merger notices

Mr. Waterson: I beg to move amendment No. 286, in page 66, line 20, after `undertakings', insert—

    `or that he agrees to give undertakings in terms which he specifies in his notice'.

We move on to more technical matters that relate to mergers, in particular to their notices. The two amendments to this clause would insert new words into subsection (8)(b), and delete subsections (11) and (12). I shall deal with amendment No. 286. Clause 93 gives the OFT the power to extend the normal 20-day fixed period for consideration of a merger notice in the event that the OFT or the Secretary of State seek undertakings.

The Chairman: Order. Is it the hon. Gentleman's wish that amendments Nos. 286 and 287 be taken together?

Mr. Waterson: No, I beg your pardon, Mr. Beard. I was getting ahead of myself. Thank you for getting

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me back on the straight and narrow. I shall deal with amendment No. 286.

The clause gives the OFT the power to extend the normal period of a merger notice where undertakings are being sought. In effect, the extension could continue indefinitely, but the party concerned has a power to give a notice of 10 days for the OFT finally to reach its decision. Subsection (8)(b) permits that, but only if parties are not prepared to give the undertaking requested. In practice, however, the OFT attempts to impose undertakings that are excessively harsh from the point of view of the parties involved.

It would be a shame if the parties had to opt either to refuse to give an undertaking, which would result in an almost certain ban after the 10-day period, or to continue with a protracted negotiation. It would be better if they could give 10 days' notice to specify the undertakings that they wanted to give, so that the OFT could make a ruling that took those suggestions into account. The amendment is minor, but not simply technical, and it imports greater flexibility into the clause. It takes some pressure off parties in such a situation.

Mr. Alexander: Amendment No. 286 would have the effect of causing the merger notice period to expire in advance of the parties giving binding undertakings. The amendment envisages a new procedure in which the parties would give the OFT a notice that set out the terms of undertakings that they were prepared to give; the OFT would have only 10 days in which to accept the proposals or make a reference. As I hope that I can explain, we are not convinced that that would work effectively in practice. Under the current system, the OFT will already have received an indication that the parties are, in principle, willing to offer an undertaking before the OFT in turn recommends such a course of action to the Secretary of State. There is then a process of pubic consultation and detailed discussion with the parties.

The current system, which we propose to retain, allows a reference to be made if negotiations fail to reach a satisfactory and timely conclusion. That provides the parties to a merger with an incentive to reach such an early agreement with the OFT, which is in the interests of achieving certainty for all the affected parties.

Amendment No. 286 would undermine a system that we believe works effectively. Parties could give an agreement in principle to give undertakings but subsequently refuse to sign a particular text offered to them. Furthermore, the 10 days before the expiry of the extension period would, we believe, be insufficient for the OFT to consult all the interested parties in all circumstances and determine whether the terms proposed were sufficiently robust and a reference were not required. It would not be in the parties' interests for the OFT to be subjected to such a narrow time constraint. Overall, it seems much more appropriate to retain the benefits enjoyed under the

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current system. I ask the hon. Member for Eastbourne to withdraw the amendment.

Mr. Waterson: I am not wholly convinced, but I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Waterson: I beg to move amendment No. 287, in page 66, line 27, leave out subsections (11) and (12).

This is such an exciting amendment that I was falling over myself to propose it a moment ago. Its effect is fairly simple. It would allow the OFT to extend the merger notice period whenever it attempted to refer a case to the European Commission under article 22(3) of the EC merger regulations. The OFT has made a couple of such referrals in recent months, but on the basis that it accepts the need for the agreement of the notifying parties, who then need to withdraw the merger notice formally. The Confederation of British Industry takes the view, with which we concur, that that existing situation is preferable to what is proposed in the clause.

Mr. Alexander: Amendment No. 287 would, in essence, undermine the OFT's ability to use the process under article 22 of the European Commission merger regulations. The amendment would prevent the extension of the time limit in a merger notice case to allow the EC to consider and proceed with a request under that article 22 process.

The provision in these subsections is necessary for the OFT to make effective use of that provision of EC law when it considers that, even though a transaction falls below the Community thresholds stated in the European merger regulations, it is more appropriate for the European Commission to consider it—because it would create or strengthen a dominant position, as a result of which effective competition would be significantly impeded in the UK or other member states.

Article 22 requests are not frequent, but there are circumstances in which that process potentially offers the most effective means of examining a case, for example, where a merger appears to raise competition concerns in several member states. In the absence of such a provision, the OFT would be faced with the choice of inviting the parties to withdraw the merger notice, or making a reference to the Competition Commission for fail-safe reasons. Although parties have so far been willing to withdraw a notice, under the new regime they could refuse to do so, requiring the OFT to make such a decision. The amendment would undermine the OFT's ability to use a provision of EC law in appropriate cases.

In the absence of that provision, parties could use the merger notice to avoid the possibility of EC consideration of a case pursuant to an article 22 request. Subsections (11) and (12) are therefore sensible provisions, which avoid the possibility of

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nugatory references. I ask the hon. Gentleman to consider withdrawing the amendment.

Mr. Waterson: I am pleased to hear that the Minister has given the matter thought and that there is a certain logic to that thought, although we do not necessarily accept it. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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