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Lord Simon of Highbury: My Lords, I am not sure how a court would interpret "compliance" in Amendment No. 52 as it stands and if it were to become part of the Bill.
Lord Kingsland: My Lords, I am sorry, I was slow in rising to promote Amendment No. 53 in my name, which is grouped with the amendment of the noble Lord, Lord Ezra. I can be brief. Amendment No. 53 in essence refers to the same issue.
The purpose of the amendment is to make it clear that action taken by holders of licences under the Electricity Act 1989, which they are required by their licences to take, would not infringe either the Chapter I or the Chapter II prohibitions. It is a specific example of the more general proposition so eloquently expressed by the noble Lord, Lord Ezra.
Lord Simon of Highbury: My Lords, where a licence permits something to be done or gives freedom to do something, can the behaviour be said to be in compliance with the licence? Indeed, can anything that is not inconsistent with the terms of the licence be said to be in compliance? That would clearly be unacceptable.
It is the Government's policy that the prohibition should apply in the regulated utility areas. That is to ensure that anti-competitive conduct can be dealt with. It was never the assumption that licence conditions could deal with all the competition concerns which can arise. That is why the regulated sectors are subject to the existing general competition law as well as to their own regimes of specific regulation. In these circumstances some interaction and overlap is inevitable.
I therefore understand the concerns about the interaction between licence conditions and the prohibitions that the noble Lord, Lord Ezra, raises, and indeed raised in slightly different terms in Committee, when I undertook to reflect carefully on whether rebuttal was an appropriate concept. The clear-cut case is where a company is specifically required to do something by a licence condition. It is clearly right that if a company is required to do something by law it should not be caught by the prohibitions for complying with that requirement. That is why we have provided, in paragraph 3 of Schedule 3, for an exclusion for compliance with legal requirements. In the utility sectors, such requirements imposed by licence conditions are imposed by or under the relevant enactment and hence are "legal requirements".
In this context, I should like to refer to Amendment No. 53 in the name of the noble Lord, Lord Kingsland. This amendment seeks to provide for a specific exclusion for agreements or conduct which are required under conditions in licences imposed by or under the Electricity Act 1989. However, as I have just indicated, the exclusion in paragraph 3 of Schedule 3 already applies to requirements imposed by such licence conditions. It is therefore not necessary to make further provision in this respect. This would not only be unnecessary duplication; it might cast doubt on whether requirements under other licensing regimes were excluded.
Returning to the amendment of the noble Lord, Lord Ezra, I agree it is tempting to think that there should also be some special provision for conduct that is in compliance with a licence regime. But we have to consider what the term "in compliance with" means in this context. It could be interpreted as ranging from something that was specifically approved, through areas where limits were set but companies are free to decide on their own conduct within those limits, to something that was simply not covered by a licence condition and therefore not forbidden. Within this range there is clearly scope for anti-competitive behaviour that is not in breach of an explicit licence condition. Where it occurs, I would want the prohibition to be applied as vigorously and as effectively as elsewhere in the economy.
The argument that conduct that is permitted by a licence condition should in some way be protected from challenge under the Chapter II prohibition comes most strongly into focus on price caps. I realise that a number of companies are concerned about a risk of challenge. But I do not believe that there is the realistic prospect of a successful challenge to the overall level of a price cap. The Director General of Gas Supply, for example, has told me, in the context of the processes and considerations involved in the setting of a price control, that she cannot envisage that there would be grounds for overall pricing at levels permitted by a price control to be challenged as a breach of the Chapter II prohibition. Nevertheless, if a company were still concerned about the risk of challenge, it would be open to it to make a notification to the regulator and obtain guidance.
While I do not believe that pricing up to the overall level of a cap would be open to challenge, pricing within the cap could still be an infringement of the Chapter II prohibition. I make no apology for returning to the example of predatory pricing which I quoted in Committee, and which we have discussed in another context today. It is perfectly possible for predatory pricing to take place, and yet for it to be said to be "in compliance" with a price control that sets a maximum level of prices. Indeed, where the price control is framed in terms of a basket of goods or services, it may be possible for predatory low prices on some products to co-exist with high prices on other products, with total revenue still within the cap. If such behaviour occurred, I would expect it to be tackled, and
I would not wish the company concerned to be able to deflect action on the grounds that it was in compliance with a licence condition.I therefore believe that the right course is to provide for the legal requirements exclusion, as we have done. Beyond that I believe that the normal burden of proof should apply in respect of decisions as to whether the prohibitions have been infringed. The onus will be on the director, regulator, or a complainant to establish that the conduct complained of constitutes an infringement of the prohibitions. It should be for those making the decision (the director, tribunal or court) to determine what evidence is relevant to the decision. The terms of a licence condition may well be relevant.
I do not believe it would be right to include a provision that would be uncertain in its interpretation, risking unnecessary appeals to resolve it, that would at best have no real effect, but which could at worst make it more difficult to tackle cases of real abuse. I therefore urge the noble Lord, Lord Ezra, to withdraw his amendment.
Lord Ezra: My Lords, I am grateful to the noble Lord for the detailed response given to this important amendment. Nonetheless, I am somewhat disturbed by it. If, as I pointed out, the licence conditions include strict conditions to prevent anti-competitive behaviour by the dominant supplier, then it seems to me that observance of the licence conditions should be regarded as predominant in cases where such conditions apply. The trouble is that that must create uncertainty in the enterprise.
The noble Lord referred to notifications. Even though strictly in compliance with the licence, having regard to the fact that anti-competitive behaviour cannot be indulged in, would they nonetheless have to think of notifying under the Competition Act? That leads to a confusing situation of an additional administrative burden which should be avoided. If there is any weakness in the Acts under which these utilities operate, then those Acts should be corrected. We and they should know where we stand. While I have no intention of pressing the amendment tonight at this late hour, I would like carefully to reflect on the situation and I may well come back to it at the next stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment Nos. 53 and 54 not moved.]
Lord Simon of Highbury moved Amendment No. 55:
The noble Lord said: My Lords, it may be helpful if I take this amendment separately. I shall take Amendments Nos. 56, 57 and 58 together and Amendments Nos. 59 and 60 together.
As I indicated in Committee we were continuing to review the extent of the exclusions set out in Schedule 3. Paragraph 4 of that schedule provides a power for the
As currently drafted, the term "international obligation" only covers formal treaties. It has been pointed out to us that this could be unduly narrow in the aviation sector. Inter-governmental agreements permitting flights between the UK and other countries are often not made as treaties. For example, they may take the form of memoranda of understanding. In practice, however , such agreements are honoured as if they were treaties. We therefore believe it right to make this limited extension to the scope of the exclusion-making power to cover agreements in the aviation sector made pursuant to such inter-governmental arrangements which fall short of treaty status. I beg to move.
On Question, amendment agreed to.
Lord Simon of Highbury moved Amendment No. 56:
The noble Lord said: My Lords, in moving this amendment I shall speak also to Amendments Nos. 57 and 58. They are technical amendments to put the ECSC treaty into the right context as regards the treaty that governs the Competition Act. I beg to move.
On Question, amendment agreed to.
Page 48, line 7, at end insert--
("( ) An international arrangement relating to civil aviation and designated by an order made by the Secretary of State is to be treated as an international obligation for the purposes of this paragraph.").
Page 48, line 30, leave out from ("agreement") to end of line 31 and insert ("which relates to a coal or steel product to the extent to which the ECSC Treaty gives the Commission exclusive jurisdiction in the matter.
( ) Sub-paragraph (1) ceases to have effect on the date on which the ECSC Treaty expires ("the expiry date").").
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