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Lord Hunt of Wirral: The noble Lord might wish to rephrase that.

Lord McIntosh of Haringey: I want to defend the use of the word "dishonesty" to describe the offence of creating a cartel. I thank the noble Lord.

As it stands, the offence is focused on "dishonest" agreements precisely in order to avoid catching bona fide activity or activity which might be exempted under existing competition law, such as under Article 81 of the EC Treaty or the equivalent provisions in Chapter 1 of the Competition Act 1998. The dishonesty approach creates quite deliberately a high hurdle to prosecution.

As the noble Lord, Lord Hunt, made clear, "dishonesty" will be assessed against standards already established in case law. He referred to the Ghosh case. I want to rely on that case here. The "Ghosh" test, a judgment of the House of Lords in 1982 and still going after 20 years, requires the jury to consider both whether what was done was dishonest according to the standards of reasonable people—the objective element of the test—and whether the defendant realised that this was the view of such people—the subjective element of the test. Evidence pointing to dishonesty is likely to include the failure to seek legal advice where it would normally be sought, combined with attempts to disguise or hide activity—for example, secret meetings and the absence of records. Those are not features of bona fide business agreements.

"Dishonesty" is a much better definition because it exists in case law and has done so for 20 years. Juries ask themselves whether what was done was dishonest by the standards of reasonable people and whether the defendant understood that that was the case.

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The Ghosh test has never been defined anywhere else in legislation because it has not been found necessary for it to be defined. That fundamentally is my answer to Amendments Nos. 180 and 181, which seek to add a further test by requiring that the underlying agreement between the undertakings should be proved to be anti-competitive under the Competition Act 1998.

Amendment No. 183 covers the same ground but seeks to establish as a statutory defence to the offence proof of the conditions for exemption in UK competition law. In response, the first thing I would say is that the Serious Fraud Office would certainly not prosecute where the agreement would not be anti-competitive under existing civil competition law.

We did consider the approach of a definition based on a direct link to Article 81 of the EC treaty, which for these purposes would amount in practice to the same thing as a direct link to Chapter 1 of the Competition Act. We set out this alternative in the White Paper last year, alongside the dishonesty option. This approach has its superficial attractions, but it would present real problems in practice. The prosecution would need to prove beyond reasonable doubt in every case that the intended agreement would constitute a breach of EC or UK competition law. This would draw in complex legal and economic argument which is beside the point when what we are doing is defining the offence tightly by focusing completely on the wrongdoing which is at the heart of the "dishonesty" offence.

If I repeat myself slightly about the "dishonesty" offence, it may deal with some of the issues that will arise later as we consider this part of the Bill. We are doing this in order to ensure that bona fide activity or activity exemptable under Article 81 is not caught in practice. We are avoiding the need for the prosecution to prove up front that the agreement would reach Article 81 of the treaty. We are focusing courts and juries on the wrongful nature of cartels—on wrongdoing. We are focusing on horizontal cartels. We are not including the vertical cartel referred to by the noble Lord, Lord Hunt, when he spoke of bona fide exclusive distribution agreements. He used the term "hardcore cartel". It is a very good phrase. Juries will recognise dishonesty of hardcore cartel members and only expect to prosecute serious and clear-cut cases.

For those reasons, I defend the use of the word "dishonestly" in Clause 183. I suggest that it is better to do that using the Ghosh definition, which has been tried and tested in case law rather than attempt to define it elsewhere and not to seek to define it by reference to Chapter 1 of the Competition Act or Article 81 of the EC treaty.

Lord Hunt of Wirral: I am grateful to the Minister for a comprehensive response on which I should like to reflect before making further decisions on how to proceed. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 180 to 183 not moved.]

Clause 183 agreed to.

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Clause 184 agreed to.

Clause 185 [Cartel offence: penalty and prosecution]:

[Amendment No. 184 not moved.]

Lord Sharman moved Amendment No. 185:


    Page 136, line 3, leave out paragraphs (a) and (b) and insert "by the Director of the Serious Fraud Office with the consent of the OFT"

The noble Lord said: The amendment deals with who is the most appropriate body to carry out the criminal investigations of cartel offences. It is our contention that it is best that they be carried out exclusively by the Serious Fraud Office. To my knowledge, at present the OFT has neither the responsibility nor the resources to carry out criminal investigations; nor does it have experience of complying with the standards of evidence required for criminal prosecutions.

Therefore, rather than going through a resourcing exercise of equipping the OFT with the necessary skills already present in the Serious Fraud Office, it would be better for responsibility for the criminal aspects of the cartel offence to be investigated exclusively by the Serious Fraud Office. That would leave the OFT with the responsibility solely for the enforcement of civil remedies. I beg to move.

Lord Kingsland: I rise to speak to our Amendments Nos. 186 and 187 in this group and to support the noble Lord, Lord Sharman. The Government's December 2001 response to consultation stated that they had decided that the SFO should be the lead prosecutor. We agree, yet the Bill does not reflect the Government's statement, as it gives equal power to the OFT and the SFO. It also gives the OFT extensive criminal investigation powers.

The OFT's powers to investigate civil infringements committed by companies under the Competition Act 1998 are different to the criminal powers under the Bill and to criminal law generally. The rights to defence differ, as well as the procedures. Giving the OFT both sets of powers will lead to confusion, particularly as most criminal investigations are likely to stem from an initial investigation under the Competition Act.

We question whether the checks and balances within, and the experience of, the OFT are sufficient to prevent confusion of the two roles. We can think of no parallel of an authority having dual tracking powers. We do not accept the Minister's view that an individual's trial would not be prejudiced by an adverse finding in respect of substantially the same matter against his employer company by, say, the Commission in Brussels under Article 81.

Moreover, we do not think it appropriate that the chairman of the OFT, who has no experience of criminal investigations or prosecutions, should authorise surveillance on application by one of his officials under the RIP Act 2000.

Instead, if the OFT is to have surveillance powers, application should be made to an independent judicial authority, such as the Attorney-General or a high

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court judge. That is consistent with the provisions for investigation under warrant, since an application in that case has to be made to a judge.

There are also a number of specific points on the OFT's powers of investigation. First, Clause 187(1) authorises the conduct of an investigation if there are,


    "reasonable grounds for suspecting that an offence . . . has been committed".

Clause 187(2) provides that the powers necessary for the conducting of an investigation—that is, the answering of questions, the provision of information and the power to obtain a warrant—are exercisable only,


    "in any case where it appears to the OFT that there is good reason to exercise them".

The test in Clause 187(1) is objective, but the test in Clause 187(2) is subjective. We believe that the powers in Clause 185(2) should be exercisable only against an objective test.

Secondly, under Clause 189(2), a warrant can authorise only a named officer of the OFT to enter premises, although that named officer may be accompanied by other officers of the OFT. It is not clear how that interacts with Clause 190, which gives the OFT powers to authorise any competent person who is not an officer of the OFT to exercise its powers under Clause 189. Clause 190 should be made subject to Clause 189(2), or the power to issue the warrant should refer expressly to competent persons who have been authorised by the OFT in Clause 189(2).

Thirdly, the Bill fails to implement a satisfactory separation of investigatory powers and duties from the prosecution function and fails to comply with the recommendations of the report of his honour Judge Gower and Sir Anthony Hammond in relation to the prosecution of offences by Her Majesty's Customs and Excise.

Fourthly, Clause 191(2) fails to provide protection to those carrying on banking businesses, as the OFT could authorise the making of the requirement in Clause 191(2)(b) in every case.

Finally, we believe that Clause 192(1)(b) conflicts with the decisions of the European Court of Human Rights. That is inconsistent with the decisions of Funke and Saunders. I know that the Minister is familiar with both cases.

12.15 a.m.

Lord McIntosh of Haringey: I look over them every night.


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