Supplementary written evidence submitted
by the Department for Business, Innovation and Skills
RESPONSE TO BISC ON FURTHER QUESTIONS RAISED
AT OR AFTER OFFICIALS EVIDENCE SESSION ON 22 JUNE 2011
1. Please
confirm the powers (under which Act) the Adjudicator could be
appointed after Second Reading
The Adjudicator could not be formally appointed unless
and until the Bill is enacted and the relevant provisions commenced.
However, Cabinet Office Guidance on Tax and Public Expenditure
is relevant to the recruitment process.[22]
Powers to incur expenditure (the "Second
Reading Convention")
19.7 Departments should not normally consume
resources or incur expenditure on new services until the relevant
legislation has Royal Assent and
the department has obtained Parliamentary authority through the
Supply Estimates process. However, where expenditure has to be
incurred urgently, it may
be possible once the legislation has passed Second Reading in
the House of Commons. Departments wishing to make appointments
to new public sector bodies being set up under specific legislation
should wait until the legislation has received Royal Assent, although
"shadow" bodies may be established to prepare the ground.
In exceptional circumstances, and with the approval of the Treasury,
appointments may be made after Second Reading in the Commons.
19.8 If the passage of the Bill is delayed, or
the Bill is introduced in the Lords and does not reach the Commons
until later than it would otherwise have done, departments must
ensure that they continue to observe the guidance in Managing
Public Money on powers to incur expenditure
on new or substantially amended services. Delay in implementation
may sometimes mean that the expenditure profile has to be revised
in order for that expenditure to remain consistent with the general
regularity and propriety principles of public expenditure.
In regard to the Groceries Code Adjudicator, with
the approval of HM Treasury, the Department could after 2nd reading
implement a process to recruit and appoint the Adjudicator, conditionally
however on the Bill being enacted and commenced. The individual
appointee could, with the assistance of the Department and/or
the Office of Fair Trading and/or the Competition Commission,
work on the draft guidance to be published under Clause 13.
However, the guidance would not be formally consulted
upon or published until after enactment and commencement of the
Bill.
2. Please confirm whether 'no win, no fee'
arrangements could apply to the conduct of arbitrations under
GSCOP
(a) In relation to an arbitration claim under
the Order, a supplier and its lawyers could agree a conditional
fee (or "no win, no fee") agreement, subject to the
normal rules regulating these agreements.
(b) Typically under these agreements, the client
pays no fee to its lawyers if it loses the case, but will still
be at risk of having to pay the other side's costs. If it wins,
the client will have to pay its lawyers' fees and often a success
fee, but the other side may have to pay some or all of these amounts.
(c) That is broadly how it would work in relation
to an arbitration under the Order as well.
(d) The only difference from a typical situation
is that Article 11 of the Order requires the arbitrator's costs
to be paid by the retailer unless the arbitrator decides the claim
was vexatious or wholly without merit—in which case the
arbitrator has a discretion to decide who should pay those costs.
(e) The Bill simply follows the Order on this
matter. (Please note that unfortunately the final sentence of
paragraph 25 of the Explanatory Notes is not quite correct. That
sentence should refer to "all costs of the arbitrator"
not "all costs of the arbitration". We apologise for
that error.)
(f) Article 11 has some benefit for the supplier
because the supplier knows that—as long as it has a reasonable
case—it should not have to pay the arbitrator's costs. So
that removes some of the remaining risk for the supplier: it might
make a "no win no fee" arrangement a bit more attractive
because it limits the supplier's downside.
(g) But that still leaves all the other costs
of the arbitration, including in particular the retailer's own
legal costs. The Order says that those costs will be assigned
at the arbitrator's discretion.
(h) So the supplier knows that, even if it has
a "no win, no fee" agreement with its own lawyers, and
even assuming its claim is not vexatious or wholly without merit,
if it loses it is still at risk of having to pay the retailer's
costs. The supplier would have to carry that risk or perhaps take
out insurance against it.
(i) So we do not think that the Order provides
any great spur to a "no win, no fee" culture.
(j) The fact there have been no arbitrations
to date seems to support that conclusion.
3. It would be helpful if some examples of
the type of advice that could be given under clause 12 were provided
Clause 12
(a) Clause 12 provides simply that: "The
Adjudicator may give advice on any matter relating to the Groceries
Code to suppliers or large retailers."
(b) As the Explanatory Note mentions, this advice
could be given either to suppliers or large retailers generally,
or to particular suppliers or retailers.
Relationship between clauses 12 and 13
(c) If the Adjudicator wanted to express some
views about how a provision of the Groceries Code should be interpreted,
that could be done privately as advice under clause 12, or the
Adjudicator could publish guidance under clause 13(3) about "the
application of any provision of the Groceries Code" or "any
other matter relating to the Groceries Code".
(d) Broadly speaking, the more general is the
communication, the wider the intended audience and the more formal
it is intended to be, the more likely that it will be the subject
of published guidance under clause 13 rather than advice under
clause 12. Clause 13(4) requires consultation before guidance
is published.
(e) Clause 13(1) also imposes the obligation
to publish guidance on the most critical issues relating to decisions
to carry out investigations, investigation procedures and the
use of enforcement powers.
Examples of provisions of the Code on which advice
might be given
(f) Turning now more directly to the Committee's
question, advice under clause 12 could be given where it appears
that the interpretation of a provision of the Code is causing
difficulty in some particular circumstances. Examples might include:
(1) the meaning of "ordinary commercial
pressures" in the definition of "Require" in paragraph
1 of the Code. The term "Require" is used in a number
of provisions such as paragraph 12 (no payments for better positioning
of goods). There is already some explanation about what are ordinary
commercial pressures in the definition of "Require",
but there could well be other questions which arise;
(2) the concept of "fair and lawful dealing"
in paragraph 2 of the Code. Again there is some explanation in
paragraph 2, but other questions could arise;
(3) whether changes of circumstances are "outside
the Retailer's control", so as to open the possibility of
adjustment to the terms of supply (providing the Supply Agreement
sets out clearly and unambiguously the basis for calculating the
adjustment so that it is not a retrospective variation of the
Supply Agreement); and
(4) what are "genuine commercial reasons"
to de-list a supplier, as referred to in paragraph 16 of the Code.
Again there is some explanation in that paragraph.
(g) It is possible that a retailer might request
advice on such questions, with a view to ensuring that it complies
prospectively with the Code. Alternatively, a supplier might seek
advice in the context of a complaint or possible complaint that
a retailer is breaching the Code. Advice might then be given on
the matter privately to one or more retailers or suppliers.
Need for care in deciding to give advice
(h) The giving of advice would of course need
to be approached with great care by the Adjudicator. For example
the Adjudicator would no doubt want to express a premise that
information provided by the retailer or supplier as the basis
for the advice was accurate and complete. And if the issue was
one which could be contentious between a particular retailer and
a particular supplier, the Adjudicator might in some cases (with
consent of the first party and respecting confidentiality) want
to seek information or views from the other party.
(i) There may also be some risk that, in certain
circumstances, advice could constrain the Adjudicator's freedom
of action in carrying out a future arbitration or investigation,
by creating an expectation that the Adjudicator would act consistently
with the advice, or by later causing a conflict of interest.
(j) The Adjudicator might also lack the resource
to meet requests for advice.
Benefits of giving advice
(k) Notwithstanding these concerns, we see the
power for the Adjudicator to give advice as helpful to the Government's
broad objective of compliance with the Code. In particular, advice
which encourages retailers to comply may be very cost effective,
if it secures that objective whilst avoiding the much more substantial
time and cost involved in investigations or arbitrations.
(l) Suppose for example that the Adjudicator
has received complaints about, or observed, a practice which appears
to breach the Code but does not merit a full investigation. It
may be that the retailer does not even appreciate that there is
a possible breach. The Adjudicator might want to draw the position
to the attention of the retailer and offer some informal advice
about compliance, perhaps with a warning that the Adjudicator
might commence an investigation if the retailer's practice did
not change. Advice in these circumstances might achieve the objective
of compliance without any significant cost, and this could be
in the interests of the retailer, the affected suppliers and the
Adjudicator.
(m) We therefore see clause 12 as a useful power
in the Adjudicator's range of functions. The Adjudicator is of
course not required to give advice in any particular case; and
so if he or she felt that the risks outweighed the benefits the
Adjudicator could decline to do so.
4. Will the Department clarify how the cost
efficiency of the Adjudicator will be audited
(a) The Adjudicator is intended to be wholly
funded by a levy on industry. As set out in the draft Bill, the
Adjudicator must seek the approval of the Secretary of State for
any levy on retailers.
(b) The Secretary of State will be mindful of
the interests of business in considering the Adjudicator's proposals
for the amount of any levy.
(c) The Adjudicator must also publish details
of levies and an explanation of how the amounts have been decided.
(d) The GCA as Accounting Officer will be personally
responsible for safeguarding the funds for which he or she has
charge; for ensuring propriety and regularity in the handling
of those funds; and for the day-to-day operations and management
of the Office of the GCA. In addition, he or she will be responsible
for ensuring that the Office is run on the basis of the standards,
in terms of governance, decision-making and financial management
that are set out in Managing Public Money.[23]
(e) The GCA will publish an annual report of
activities together with accounts after the end of each financial
year. As stated in the draft Bill, the Comptroller & Auditor
General (C&AG) will audit those annual Accounts.
5. Will
the Department clarify the position on whether the Adjudicator
will need to have regard to overriding principles and how the
decision on that was arrived at
(a) We assume that this question refers to the
three principles referred to in the Government's Consultation
and Response. The Department has not taken any different view
about any of the principles as such.
(b) But in short we decided that it was unnecessary
to set these out on the face of the Bill. We deal with these in
turn below.
First principle
(c) The first principle was that the Adjudicator
should:
"have regard to the overriding objective of
the [Groceries Code] Scheme to work in the long term interest
of consumers, and the findings of the CC in the Report".
(d) We would naturally expect the Adjudicator
to keep in mind the findings of the Competition Commission, and
the long term interests of consumers, in performing his or her
functions. But we would expect this to happen without the Bill
needing to set this out.
(e) The Adjudicator is a public authority and
can be expected to consider the Competition Commission's report,
and its stated objectives, in carrying out his or her functions.
There will be other material the Adjudicator should take into
account as well: one example would be the annual compliance reports
made by retailers under Article 10 of the Order. There is no need
to lengthen the Bill by setting all this out.
Second principle
(f) The second principle was that the Adjudicator
should:
"not facilitate or encourage coordination among
retailers and/or suppliers. Such coordination could arise from,
for example, round-table meetings and the encouragement of any
dialogue between suppliers and retailers outside normal bilateral
commercial arrangements".
(g) This principle is there to warn that the
Adjudicator's activities should not encourage anti-competitive
agreements or practices by suppliers or retailers. That is of
course correct, but we do not think it needs to be set out in
the Bill.
(h) The Bill sets out what the Adjudicator has
a duty or a power to do; and does not need to set out everything
that the Adjudicator should not do. The powers and duties are
limited anyway to what is in the Bill.
(i) The Adjudicator can be expected to be familiar
with the relevant competition law principles and with practices
in the groceries industry, and to avoid this risk without it being
an express requirement in the Bill.
(j) If the Adjudicator simply carries out his
or her functions of enforcing the Groceries Code, we do not see
this as a major risk in any event.
Third principle
(k) The third principle was that the Adjudicator
should:
"avoid any activity that is not focused on the
overriding objective of the Scheme. In particular, in undertaking
his functions the [Adjudicator] should confine his activities
to evaluating the operation of the Code and should not consider
other commercial elements of the Supply Agreement".
(l) The Adjudicator's duties, powers and functions
are limited to those set out in this Bill. These are clearly limited
to the operation and enforcement of the Code through arbitrations,
investigations and related enforcement powers, advice, guidance
and reporting.
(m) The Adjudicator's other powers are incidental
to these functions.
(n) As a statutory office holder, the Adjudicator
only has the powers expressly granted by the Bill.
(o) So there is no question of the Adjudicator
getting involved in other aspects of supply agreements, or indeed
anything other than the Code. There is no need for the Bill to
set out what the Adjudicator cannot do.
(p) If, for example, the Adjudicator sought to
get involved in some other aspect of a supply agreement, this
would be outside the Adjudicator's powers and could be restrained
by a Court.
(q) As regards the second and third principles,
there may also be a risk that, by stating expressly that the Adjudicator
should not do certain things, it is argued that an implication
arises that the Adjudicator can or should do certain other connected
things. We and Parliamentary Counsel want to avoid this risk of
uncertainty.
In addition, it was agreed that the Department would
write with the following further details:
1. Details of possible safeguards against
inadvertent disclosure of complainants' identities
(a) Clause 19 imposes a clear duty on the Adjudicator
not to disclose information that might cause someone (probably
a retailer) to think that a particular supplier has made a complaint
about a retailer breaching the Groceries Code.
(b) One of the limited exceptions to this duty
is where the supplier consents to the disclosure. There may well
be complaints where this consent is given, but to the extent it
is not, the Adjudicator will need to reconcile the maintenance
of confidentiality with the need for procedural fairness towards
the retailer under investigation. Procedural fairness would normally
require that a person against whom an allegation is made should
know the identity of the person making the allegation. But the
Adjudicator will have to proceed so as to avoid (either deliberately
or inadvertently) disclosing the identity of complainants to a
retailer under investigation, unless they give consent.
(c) The key point here is that it is very unlikely
that an investigation will have as its object the resolution of
a particular complaint against a retailer. Rather, it is much
more likely that an investigation will consider a more general
pattern of behaviour by the retailer (or for that matter a number
of retailers). The Adjudicator is unlikely to commence an investigation
unless and until a body of prima facie evidence is available from
complaints or other material.
(d) Therefore, the breadth of the investigation
should enable the Adjudicator to require information from, and
ask questions of, the retailer in a sufficiently broad way that
the retailer cannot deduce from this the identity of any complainant.
(e) Suppose for example that a number of drinks
suppliers complain that a retailer (or a number of retailers),
in order to encourage new product lines, have been committing
contractually to certain minimum purchase levels over the first
year of a supply agreement, but then refusing to pay for some
of these purchases when retail sales are disappointing. This behaviour
may breach paragraph 3 of the Code (retrospective variations of
supply agreements) if this is not set out clearly and unambiguously
set out in the supplier—retailer agreement.
(f) If the Adjudicator decides to investigate,
the scope of the investigation will relate to the prima facie
evidence provided, but clause 5 of the Bill expressly allows the
Adjudicator to consider any appropriate information. In this example,
the Adjudicator might therefore seek information from the retailer(s)
about:
— all
retrospective variations affecting drinks suppliers during a specified
period;
— all
retrospective variations affecting food and drinks suppliers during
a specified period;
— all
retrospective variations affecting all suppliers during a specified
period; or
— retrospective
variations affecting only price and payment during a specified
period.
As a general rule, the more focused the information
required, the longer might be the specified period.
(g) The Adjudicator should be able to select
lines of enquiry which, in the relevant context, are sufficiently
wide that the questions raised do not inadvertently reveal the
identity of any particular complainant who has not consented to
disclosure.
(h) As a practical measure, the Adjudicator may
want to discuss with the relevant suppliers how he or she intends
to proceed, to ensure that they are comfortable with the lines
of enquiry. (This is an approach successfully taken by the Competition
Commission in carrying out its investigation into the large retailers
between 2006 and 2008.)
(i) The information provided by the retailers
in response to the Adjudicator's enquiries should provide an evidence
base for further enquiries, and/or for the findings of the Adjudicator's
report. As explained above, those findings will probably not be
based wholly on the original complaints. Instead the evidence
base should be sufficiently wide that—particularly as information
will probably have been provided by the retailer itself—the
findings do not inadvertently or implicitly reveal the identity
of complainants who have not given their consent. Such an approach
should also be capable of being procedurally fair to the retailer
since the evidence base on which the action taken by the GCA is
founded will be clear to the retailer (although the evidence disclosed
will need to be carefully considered by the Adjudicator in each
case).
(j) We have assumed that the Committee's question
is not primarily directed to the normal maintenance of security
of confidential information as against third parties generally.
The Adjudicator will of course need to put in place normal security
procedures to protect hard and soft copy information provided
by complainants. The Adjudicator will be able to benefit in this
respect from the practical experience and advice of the Competition
Commission, the Office of Fair Trading and the Department.
2. A clarification of the costs structure
(startup and ongoing) of the Adjudicator's office
(a) The set-up costs for the body have been estimated
to be £220k, which is proposed to be met by the retailers.
The make up of these costs are outlined more fully in the Impact
Assessment in table 3 and on pages 23 and 24.
(b) The operating costs for the GCA as a result
of this Bill have been estimated to be £800k, which it is
proposed to be met by the retailers. Again the breakdown of these
costs has been outlined in the Impact Assessment in Table 4 and
on pages 24 and 25.
(c) The costs to business associated with the
GCA once it is established are estimated to be £1.2 million
annually, on the basis of a cost per retailer of £120k. (Found
on pages 22-23 of IA). We consulted on these costs and were not
presented with better information on these points in the consultation.
(d) Therefore the total annual costs to business
(across all designated retailers covered by the GSCOP) of the
GCA are intended to be around £2 million ie £800,000
for costs of the GCA (which is to be met by the retailers), and
£1,200,000 for costs to the retailers for GCA-related activity.
Please note that this £2 million figure is the overall annual
cost to business for the running of the GCA (this does not cover
their obligations under GSCOP as set out in the Competition Commission's
Order). The correct figure is £2 million, not £5 million,
as referred to during the evidence sessions.
(e) It is important to note this does not include
the costs of arbitration, which would be undertaken by the GCA
once it has been set up, as arbitration is possible even without
the setup of the GCA. Similarly, these costs do not include the
costs of compliance with the GSCOP as again these are costs which
would be incurred, whether or not we introduced the GCA. The impact
assessment estimated these costs to be £1.7 million per year
(across all 10 retailers) with initial transition costs of £10
million (see pages 19-20 of IA). However, these costs are not
as a result of this Bill but as a result of the GSCOP and form
the baseline for assessing the cost of the GCA. The costs outlined
in the summary sheets of the IA are only the incremental costs
of introducing the GCA.
3. Examples of changes made to the Bill to
accommodate plain English drafting style
(a) The Committee asked about what changes were
made to the Bill to accommodate a "plain English" drafting
style.
(b) The Bill is not drafted in "plain English"
in the sense of having been measured against any set of express
rules. It must also be noted that the Bill was, like all Bills,
from the outset drafted by Parliamentary Counsel with the need
for clarity and accessibility for all users of the legislation
very much in mind. So it is not the case that the Bill was originally
drafted using one style and approach and then, from a particular
time, using a very different one. Therefore, it is not easy, and
would probably not be particularly useful, to deal with this request
from the Committee in great detail.
(c) However, during the drafting process there
were a number of very helpful discussions about trying to make
the Bill suitably intelligible to readers. There was also an objective
that the Bill should tell a clear story about what is the background
to it and why it is needed.
(d) It was decided that the background to the
Bill, together with a short explanation of why an Adjudicator
is needed and the key purposes of the office, should be set out
at the front of the Bill so that the reader should have some understanding
of what the Bill is about, before turning to its detailed provisions.
(e) We also agreed that it would be helpful on
this occasion to interleave the explanatory material on each clause
with the clauses themselves, so that the reader can look across
easily for an explanation of what each clause is seeking to achieve,
and why.
(f) In the Bill itself, the use of sub-headings
for each group of clauses in the form of questions is intended
to help guide the reader through a narrative of what the Bill
requires.
(g) A number of other changes in approach were
directed to trying to draft in a rather more discursive style,
and to reduce the number of clauses and subsections, in an attempt
not to break up the flow of the document.
(h) In places this meant having one longer subsection
rather than two shorter ones. This approach was taken, for example,
in clauses 3(1), 4(1) and 20(5).
(i) In other places a longer clause with more
subsections was used rather than breaking the material down into
several clauses. This approach was taken, for example, in clauses
16 and 17.
(j) There was also a desire to move technical
detail to the end of the Bill so as avoid disrupting the narrative.
So, for example, a number of definitions that might otherwise
have been included where the defined term first appears were moved
to the definitions clause at the end of the Bill (clause 23).
(k) Similarly, the amendments made by the Bill
to different statutes were put in clause 22 under the heading,
"Will this law mean other changes to the law?". The
amendments to the Enterprise Act 2002 were previously in a separate
clause alongside clauses 18 and 19 (the other clauses about how
information is handled).
(l) It was also decided to move the provisions
about the Secretary of State's power to make an order conferring
power on the Adjudicator to impose financial penalties to a Schedule
(Schedule 3) so as to avoid breaking up the description of the
Adjudicator's enforcement powers in clauses 7 to 11.
(m) Finally, there are several instances of a
more experimental style of drafting: for example the description
of what are the Adjudicator's enforcement powers in clauses 8(1),
9(1) and 10(2) ("that means..." etc).
Additional point from BIS on Review Periods (under
Clause 16)
(a) We would like to take the opportunity to
add a brief further explanation about the relationship between
the review period (clause 16 of the Bill) and the period of the
first term of appointment of the Adjudicator (up to five years—paragraph
6 of Schedule 1). This was the subject of a question towards the
end of the evidence session on 14 June.
(b) There is in fact a reasonably close connection
between these periods because:
— the
first review period will be between three and four years, depending
when the Act comes into force. Please see clause 16(2). The policy
is that review periods should end on 31 March, to coincide with
the reporting and accounting year; and
— some
time needs to be allowed after the review period for the Secretary
of State to carry out the review and publish a report.
(c) We did consider drafting to adjust down the
maximum first term based on the date of commencement of the Act.
This would have made the connection with the review period closer.
But in discussion with Parliamentary Counsel we concluded that
this would have complicated paragraph 6 of Schedule 1 and we were
not sure it was worthwhile doing so, bearing in mind that the
Secretary of State could in any event appoint for a lesser period
than five years, based on the facts nearer the time.
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