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9 Feb 1998 : Column 884

4.15 p.m.

Lord Morris of Manchester: My Lords, I am grateful to my noble friend the Minister for the care he has taken in replying to the debate. Overwhelmingly, those who took part did so supportively of the amendment. The principal critic was the noble Lord, Lord Jacobs. He was corrected by his noble friend Lady Ludford about the mistake of thinking that consumer groups are not working with the Community Pharmacy Action Group.

Adding to what the noble Lady said, I can inform the noble Lord that the Patients' Association; Scope, formerly the Spastics Society; as well as the National Council of Women, among other organisations which work closely with consumers, are supporting the amendment. As my noble friend the Minister said, we shall be returning to these important issues later. Meanwhile I was encouraged by his reply. He recognised that a transition period of at least five years is extremely important; and I ask him to think very carefully about my point concerning double jeopardy before we come to take a definitive decision on 19th February.

In the light of what my noble friend said, and in keeping with the general feeling on both sides of the House not to divide at this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 [Agreements etc. preventing, restricting or distorting competition]:

Lord Fraser of Carmyllie moved Amendment No. 2:

Page 2, line 21, at end insert--
("( ) Subsection (1) applies only if the agreement, decision or practice has, or is likely to have, a significant effect on competition within the United Kingdom.").

The noble and learned Lord said: My Lords, in moving this amendment, I return to a point that was raised in Committee. We believe it correct that the word "significant" should be included and that the wording of the provision should be explicitly confined in that way. That is how the prohibition was originally drafted in the 1996 draft Competition Bill and it enjoyed widespread support in the business community.

However, when I raised this last time round not only the Minister but the noble Lord, Lord Borrie, pointed out to me that, according to the jurisprudence of the European Union, the scope of Article 85 was limited to arrangements which had an appreciable effect on competition and that, accordingly, it was not necessary to include the word "significant". I beg to differ. It still seems to be desirable both for industry and business more generally, but also to ensure that a large number of unnecessary notifications are avoided. That would be a worthwhile result. My understanding is that because of the wide interpretation of Article 85 adopted by the European Commission, the outcome in practice has been a significant number of unnecessary notifications, causing delay. At times the Commission has almost reached the point of being unable to cope.

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The further argument which I understood to be addressed to me last time round by the Minister (at col. 259 of the Official Report) was that this would be at variance with what goes on in Europe, that we must be Euro-treu and that we must not put in things which cause our law to develop in a way that is not compatible with emerging European jurisprudence. However, over the weekend I was whiling away my time reading through Dutch competition law. The noble Lord may be impressed to know that I discovered that Article 6 of Dutch competition law is exactly the same as our Clause 2. It reflects the language of Article 85. But Article 7 of the Dutch code says that the Article 6 prohibition shall not apply to agreements, decisions and concerted practices if no more than eight undertakings are involved in the relevant agreement, or if no more than eight undertakings are involved in the relevant association, but that one tests against the combined turnover of the undertakings. They define it in terms of such small sums as 10 million Dutch guilders or, in certain other cases, as low as 2 million Dutch guilders. Further, it is said that, by general administrative order, Clause 1 may be declared inapplicable to categories of agreement which are,

    "of clearly minor significance from the point of view of competition".

So, even if within the DTI the view is that it is undesirable to express in domestic legislation nothing more than what is to be found in Article 85, that same approach has not been taken in The Hague. I should like to avoid spending future weekends reading through the competition law of other countries to discover whether they have restricted themselves rigidly to the wording of Article 85 or have, in their own way, sought further additions to give some explanation and some proper context for the application of Article 85 within the domestic context.

I urge the Minister once again to consider putting back into what was the original draft the word "significant". I beg to move.

Lord Campbell of Alloway: My Lords, I support the amendment. Significant effect on competition is measured by turnover. That surely must be right. The amendment restricts the jurisdiction to that of our courts within the United Kingdom. This is the very area where problems of claim of extra territorial jurisdiction arise, particularly as regards the United States of America. It is right, surely, not only to avoid an overlap with the jurisdiction of the Commission but also any possible assumption of extra-territorial jurisdiction, which is not the intent of the Bill, as I understand it.

Lord Borrie: My Lords, perhaps I may point out in response to the noble Lord, Lord Campbell of Alloway, that Clause 2 as it stands is concerned only with agreements between undertakings and so on which may affect trade within the United Kingdom. Furthermore, while the turnover point he mentioned may well be relevant, it depends on the particular market. There are local markets for a number of local goods and services--for example, buses--where the turnover of the company may be quite small but where a restrictive agreement or cartel between companies which is

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restrictive of competition should be prohibited even though it is small scale compared with major industrial concerns.

I am mildly surprised that the noble and learned Lord, Lord Fraser of Carmyllie, has returned to this matter and mildly surprised that his weekend has been upset by his perusal of Dutch law, which, so far as he described it--I bow to his very recent knowledge of it--does not seem to be that helpful to us in the UK at this time. I am surprised that he has returned to this matter since the Committee stage because it seems to be generally accepted that the European jurisprudence, which is incorporated into the Bill though Clause 58, says that anything that does not have an appreciable effect on competition--which I think we can all interpret as meaning almost the same as significant--is not prohibited by Clause 2. As the noble and learned Lord has not added any new arguments, except ones I did not perhaps entirely follow from the Dutch law, I am surprised that he has returned to wanting to pursue what is really not necessary.

At various points of the Committee stage we discussed the work of the Director General of Fair Trading, sometimes in conjunction with the other regulators who have a role under the Bill, dealing with telecommunications, gas, electricity and so on. He is going to produce what the Minister, I think for convenience, called guidelines under Clause 50. We shall come to that clause later on. The fact is that the Director General of Fair Trading accepts his educational role--his role in giving guidance to industry, big and small--as to the effect of the prohibitions and the effect of the new law. Therefore, I do not think it is necessary to add to the wording of the clause what the noble and learned Lord has suggested.

Lord Ezra: My Lords, in spite of what the noble Lord, Lord Borrie, has just said, the aspect of the matter that worries me is the large number of apparently unnecessary notifications which find their way to the Commission as a result of the interpretation of the wording in Article 85. If that were to happen over here it would not only be massively to the disadvantage of enterprises but it would clog up the work of the OFT and the other regulators. That aspect has seriously to be considered. I should be interested to know from the Minister how he feels that in practice this will develop if the amendment is not adopted.

4.30 p.m.

Lord Kingsland: My Lords, the noble Lord, Lord Ezra, has made the point very well. Even with the discipline of the expression "appreciable" in European jurisprudence, the European Commission is still over-faced with the amount of notification with which it has to deal. So the inclusion of the word "significant" would act as a very important discipline which would tend towards the de-bureaucratisation of our own system.

I have one further observation to add. I know at Committee stage the Minister placed great emphasis on the importance of our being consistent with European jurisprudence and practice. But that ought not to be fatal

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to a change of heart because there are other areas in this Bill where he has not been consistent over incorporating European practice. I am thinking particularly of the area of remedies and procedures where, as I understand it, he is proposing to adopt solutions which differ widely from those included in Regulation 17.

Lord Simon of Highbury: My Lords, we have reflected most carefully on the arguments advanced during the first Committee day by the noble and learned Lord, Lord Fraser, and the noble Lords, Lord Ezra and Lord Campbell, in support of the same amendment we are now debating.

I think we are all agreed that the UK competition regime should concern itself only where the anti-competitive effects of an agreement are significant or appreciable. We appear to be debating those two words yet again.

The case law of the European Court of Justice clearly establishes that Article 85 only applies where there is an appreciable effect on trade and competition. Furthermore, UK courts, in interpreting EC competition law, have clearly held that an agreement is only caught by Article 85 where there is an appreciable effect on competition. Take the example of the High Court in Society of Lloyds v. Clementson. The court concluded that to the extent that the central funds arrangements of Lloyds had the effect of restricting competition its impact on competition was not "appreciable" and therefore was not caught by Article 85. The UK courts are therefore used to applying the EC appreciability test in EC cases which come before them. The governing principles clause will require the same interpretation for the UK prohibition of anti-competitive agreements.

So, what of the argument, suddenly, that we should insert an explicit significance test for clarity and the avoidance of doubt? The court seems clear. I am very much in favour of clarity. But an explicit appreciability test here would increase, rather than reduce, uncertainty. Article 85(1) contains no express appreciability test. By departing from the language in Article 85(1), we would create the impression that we were trying to depart from established European principles. That was the point made by the noble and learned Lord, Lord Fraser. We should be Euro-treu, if that is the word that I heard him use. It might have helped him over his thoughts at the weekend if, in his mind, he had been able to capture that famous aphorism that I learnt when I lived in Holland. I have only changed it very slightly. In matters of competition the fault of the Dutch is giving too little and asking too much. Had the noble and learned Lord had that, he might have been able to re-position the statement.

I remain concerned that an express significance test might inadvertently create so high a threshold for action that we could impede the effective tackling of anti-competitive agreements. I believe that this is the most important issue. The secondary issue is that the lack of clarity could give rise to even more work rather than less. I agree with the noble Lords, Lord Kingsland

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and Lord Ezra, who said that that is what we are trying to achieve with the translation through Article 85 of the European jurisprudence into the UK base.

I do not believe that the director will have interest in applying the prohibition where there is no appreciable effect on competition. I believe that my noble friend Lord Borrie has made clear, and it is helpful, that the director's guidelines will specifically address the question of appreciability. That will certainly provide additional comfort for business. So on the grounds of clarity and of the law base already being understood in this country--and we have that evidence--and on the grounds that we should not always learn from the Dutch, I remain convinced that we should not insert an explicit significance test. Therefore, I urge the noble and learned Lord to withdraw the amendment.

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