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Lord Sainsbury of Turville moved Amendments Nos. 84 to 90:

"(2A) The power of the Secretary of State under section (Power to alter share of supply test) (including that power as extended by subsection (2) above) may be exercised by modifying any enactment comprised in or made under this Act, or any other enactment."
Page 88, line 34, after "57(3)" insert ", (European mergers: scheme for protecting legitimate interests)"

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    Page 88, line 37, after "27" insert "(including that enactment as applied by section 41(5), 58(4) and (European mergers: intervention to protect legitimate interests)(7))"

    Page 88, line 41, after "section" insert "(European mergers: scheme for protecting legitimate interests)",.

    Page 88, line 41, after "99" insert ", (Power to alter share of supply test)"

    Page 89, line 5, after "repealed" insert "(and the previous enactment revived)"

    Page 89, line 7, at end insert "and without prejudice to the making of a new order"

On Question, amendments agreed to.

Clause 124 [Other interpretation provisions]:

Lord Sainsbury of Turville moved Amendment No. 91:

    Page 92, line 13, at end insert—

""Community law" means—
(a) all the rights, powers, liabilities, obligations and restrictions from time to time created or arising by or under the Community Treaties; and
(b) all the remedies and procedures from time to time provided for by or under the Community Treaties;"

On Question, amendment agreed to.

Clause 125 [Index of defined expressions]:

Lord Sainsbury of Turville moved Amendments Nos. 92 and 93:

    Page 93, line 29, at end insert—

    "Community law
    Section 124(1)"

    Page 94, line 26, leave out "Section 41(3)" and insert "Sections 41(3) and (European mergers: intervention to protect legitimate interests)(9)"

On Question, amendments agreed to.

Clause 126 [Power of OFT to make references]:

Lord Hunt of Wirral moved Amendment No. 94:

    Page 95, line 24, after "competition" insert "to a significant extent"

The noble Lord said: My Lords, perhaps I may explain that on Amendment No. 79 I was reassured by the Minister's statement that this will now form part of the tribunal's rules. Although I expressed the doubt that these would only be permissive in nature, I should like to reflect further on the position. That is why we did not oppose Amendment No. 79.

Turning to Amendment No. 94, market investigations impose significant costs on business. It is important that they are initiated only where there are sound reasons to believe that there is a significant adverse effect on competition. I emphasise the word "significant". That is a principle which is commonly found in UK and EC competition law. Without this change, conduct outside the market concerned could be grounds for making a reference, and any effect, however minor, can be referred by the OFT.

The Government seem to agree that only important cases should be referred to the Competition Commission. If that is the case, I hope that the Minister will recognise that that is not reflected on the face of the Bill but it will be if he is disposed to accept

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this amendment. I contend that business needs clarity, and this clause does not provide it. I therefore hope that the Minister will accept this amendment, which I beg to move.

9.45 p.m.

Lord Hodgson of Astley Abbotts: My Lords, I support my noble friend's amendment. The use of the word "significant" is critical. I once had the dubious pleasure of being a director of a company that was being bid for by another company and which became the subject of an OFT investigation. The position of companies in victim mode, as we were, is unenviable. In trying to hold the company together, management and staff are very concerned, so such investigations are not to be entered into lightly for reasons of data-gathering or in response to political or economic pressure. The insertion of the word "significant" is entirely in keeping with the thrust of the Bill to ensure that we have a fully competitive market in this country. I hope that the Minister will look upon it favourably.

Lord Borrie: My Lords, I have been surprised that the noble Lord, Lord Hunt, has not produced any examples of the OFT over the years failing to comply with what he wants; that is to say that investigations are sought and references made only when it is likely that competition will be restricted "to a significant extent". He wants those words on the face of the Bill, yet only a few moments ago he expressed concern on behalf of those who might be subject to judicial review that it can be a painful process. The only effect of inserting "to a significant extent" would be that the OFT would proceed as it invariably has done, namely in line with the sensible policy that the noble Lord advocates, but it would face a greater possibility of judicial review if someone wanted to argue about the precise meaning of those words in a precise situation.

Lord Sainsbury of Turville: My Lords, the trouble with having the noble Lord, Lord Borrie, on one's side on these matters is that all the best lines are taken before one can speak. He put the point extremely well.

Amendment No. 94 provides that the OFT may make a market investigation reference only when it has reasonable grounds to suspect that one or more features of market prevents, restricts or distorts competition in the UK market to a significant extent. We have made it clear in both this House and the other place that we intend that market investigations should be used only to pursue potentially significant competition problems. For its part, the OFT states clearly in its draft guidance on making market investigation references that it will take account of the scale of any suspected adverse effects on competition and the extent to which they are likely to have significant detrimental effects on customers before making a reference. The draft guidance goes on to outline some of the factors that the OFT will take into account when deciding whether a reference is an appropriate response to the apparent scale of any competition problem; for example, the size of the market and the proportion of the market affected by the feature giving rise to the adverse efforts.

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In our view, it would be unreasonable for market investigation references to be used to look at trivial competition policy, there is no reason to suppose that the OFT will attempt to use them in such a way, and nothing would be gained by referring explicitly to the "significance" of potential adverse effects in Clause 126.

I reiterate the two important points that the noble Lord, Lord Borrie, made. No evidence has been given that the OFT's role has been abused in the past, therefore there is no reason to suppose that it will be in the future. I am not certain that to introduce "to a significant extent" would add any clarity, but it would leave more room for debate, argument and judicial review. On that basis I ask the noble Lord to withdraw the amendment.

Lord Hunt of Wirral: My Lords, it is curious that the noble Lord, Lord Borrie, argues that it is unnecessary to include the word "significant" in the Bill because that has always been the way in which the OFT has operated. We are dealing with a new body and with legislation that will stand for a significant time. It is important to ensure that the good practices of the past continue into the future.

The noble Lord says that it would give additional ammunition to the lawyers who no doubt would be seeking judicially to review the decision. However, surely it is important to have on the face of the Bill the situation as it is and as it ought to be and to leave whatever the processes—I failed to persuade the Minister as to the correct process—to take their course if they are called into effect.

I agree with my noble friend Lord Hodgson of Astley Abbotts that it is important to ensure that, as the noble Lord, Lord Borrie, described it, the practice of the past continues into the future. However, I shall reflect not only on all the best lines, which the Minister seemed to believe were possessed by the noble Lord, Lord Borrie, but on his comparatively good lines. I shall go away and think further and, in the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Phillips of Sudbury moved Amendment No. 95:

    Page 95, line 26, at end insert—

"( ) In considering the making of a reference under subsection (1) affecting the regulation or obligations of the legal profession the OFT shall have regard to the duties of lawyers in relation to the sound administration of justice and to the interests of consumers of legal services and of those lacking the same."

The noble Lord said: My Lords, first, I must declare an obvious interest as a solicitor. Amendments Nos. 95, 102 and 105 are relevant to the legal profession. Similarly, the noble Lord, Lord Brennan, who is unavoidably absent, was a former chairman of the Bar Council. It is relevant to point out that the Bar Council and the Law Society are taking an interest in the amendments, although they were tabled before that was apparent.

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The overall purpose of the amendments is to give the legal profession in the shape of the Law Society, which is responsible for solicitors, and the Bar Council, which is responsible for barristers, the power to make regulations for the two professions in the public interest. They will write on to the face of the Bill allowances which would mean that anti-competitive references made under Clause 126 can be considered in the light of the special and particular position of legal services.

In turn, the amendments will allow the Competition Commission, in deciding market investigation references, to make the same allowance. Without these amendments, or something like them, there would be no power for either the OFT or the Competition Commission to have regard to the particularities and importance of legal services.

I want to comment briefly on the special nature of legal services. Lawyers pleading their own cause, pleading a special position in relation to any legislation, will be a sensitive task, but it is not we who have made the legal profession and the services it renders special. All solicitors and barristers are officers of the Supreme Court. They have special obligations with regard to the court and to justice. They have special duties and are subject to statutory discipline. They have a special role as advocates. They have special obligations to clients; for example, the cab-rank rule which applies to barristers. They are subject to special accounts rules and to special indemnity arrangements. Perhaps most importantly, they have a unique legal privilege in terms of the confidence they can maintain vis-à-vis their clients' affairs. All those aspects of the nature of the legal profession, whether solicitor or barrister, relate to the importance of their function at the heart of society; namely, in relation to the courts.

I should like to say a few words about the particular importance and nature of legal services. In a law-bound culture and an age when this place seeks daily to legislate rights for citizens, access to requisite legal services is not an optional extra—it is not any old other service. The delivery of social rights, for example, whether in terms of housing or social welfare or whatever else, is nugatory and pointless without the availability of lawyers who are both affordable and accessible geographically. Equality before the law, one of our proudest boasts, becomes a sham unless we recognise that the provision of legal services occupies a very particular position. That is the background.

I should like to refer briefly to the case of Klopp, which was heard in the European Court in 1984. This case confirmed a point that has been consistently upheld—that in the absence of specific community rules in the field, each member state is in principle free to regulate the exercise of the legal profession in its territory. Consequently, the rules applicable to the legal profession differ greatly from one member state to another, so that, for all the reasons I have mentioned, EU jurisprudence puts the legal profession into a special position. The other point is that the provisions dealt with in these amendments—Clauses

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126 and 129—hark back to Article 81, formerly Article 85, of the Treaty of Rome, which is the central pro-competition section of the treaty.

We need these amendments for the following reasons, which are only illustrative. The regulatory borderline between solicitors and the Bar, maintaining the two as separate professions, is one competition issue; an issue of anti-competitive arrangements. Partnerships at the Bar currently are not allowed. Although one might regard the fact that every barrister must act on his or her own as a competitive ideal, some might say that that is an anti-competition issue. The position on partnerships between barristers and solicitors is another such issue, as is the matter of multidisciplinary partnerships between solicitors, barristers and accountants, for example. All of those are potentially anti-competition issues. Without these or similar amendments, we cannot address those issues in a manner that pays proper regard to the circumstances of the UK legal profession and the particular circumstances of the client.

Each of the three amendments in this group deals expressly with the issue of availability. At the end of Amendment No. 95, for example, we talk not only about the interests of the consumers of legal services, but about "those lacking the same". The same wording is used in Amendment No. 102. The words that Amendment No. 105 proposes will enable the Competition Commission, in considering a market reference from the OFT, to have regard not only to the possibility of a detrimental effect on the price of legal services, the quality of legal services and the choice of legal services, but also to the availability of legal services. One might think that that is a quibble, but it is not. One is not a consumer of anything if one cannot purchase the item to be consumed.

As we know, legal services in this country are, like those in other countries, hugely expensive. The legal aid scheme, sadly, is being run down. The truth is that an increasing minority of our population are not consumers of legal services when they need them because those services are not in truth available. The question of availability is central to these three amendments and central also to the current disposition of legal services between small and medium-sized, cheap high street solicitors firms on the one hand and, on the other, a populous Bar with a cheap end.

I shall not say more than that as the issues are complex. However, I considered that I needed to illustrate why the amendments are necessary. It is not a question of prejudging the issues but merely of allowing them to be properly judged when the time comes, if the time comes, by the Office of Fair Trading and, indeed, by the Competition Commission.

Finally, I am reluctant to drag in another European Court case at this time of night but I believe that it is necessary. I refer to the case of Wouters which was decided in February of this year. That case made abundantly clear that as regards Article 81—formerly Article 85—the key anti-competitive provision, so long as the domestic legislation of the member state

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involved allows, the court can take account of these public interest factors. I have short-handed the key elements of the Wouters decision in mentioning in my amendments the,

    "duties of lawyers in relation to the sound administration of justice and to the interests of consumers of legal services and of those lacking the same".

In order more vividly to explain why Wouters is relevant, I wish to quote from paragraph 97 of the judgment. The case involved the refusal of the Netherlands Bar to allow multidisciplinary partnerships. The European Court at the highest level upheld that anti-competitive—as some would say—provision because, as it stated,

    "account must first of all be taken of the overall context in which the decision of the [Netherlands Bar] was taken or produces its effects".

It is crucial that we consider the whole context, social as well as economic. The judgment continues,

    "More particularly, account must be taken of its objectives, which are here [in the Wouters case] connected with the need to make rules relating to organisation, qualifications, professional ethics, supervision and liability, in order to ensure that the ultimate consumers of legal services and the sound administration of justice are provided with the necessary guarantees in relation to integrity and experience".

I hope that I have not wholly confused the House in trying to explain a none-too-easy set of amendments. I also hope that the Government will be sympathetic to the purpose of the amendments which I assure the Government is not driven by a professionally self-interested motivation. I beg to move.

10 p.m.

Lord Sainsbury of Turville: My Lords, I am grateful to the noble Lord, Lord Phillips of Sudbury, for raising in these amendments issues which are of great importance not only to members of the legal profession but also to society as a whole. The sound administration of justice and the promotion of access to justice are matters of the utmost concern to this Government, as, of course, is the promotion of competition. I wish to quote from a consultation document recently issued by the Lord Chancellor's Department in response to the work which the OFT has been doing on competition in the legal and other professions:

    "The Government starts from two propositions. First, the professions should be fully subject to competition law and unjustified restrictions on competition should be removed. Second, when considering competition in the legal professions, the need to keep clearly in view the public interest in maintaining an independent, honest and diverse profession and ensuring the protection of consumers, while encouraging healthy competition to promote new, better and affordable services and wider consumer choice".

The amendments relate to the considerations that the OFT should bear in mind when making any market investigation reference relating to the legal profession, to the circumstances in which the Competition Commission may make a finding of adverse effects on competition when considering such a reference and, where there is such a finding, on the definition of customer benefits that may be held to outweigh such adverse effects. I shall deal with each of those in turn.

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As regards any future reference decision affecting the legal profession, the amendment requires the OFT, in essence, to take account of the non-competition-related public interest considerations which underlie the regulation of that profession. The noble Lord, Lord Phillips, is concerned that in its zeal to promote competition, the OFT may initiate a process that could be damaging to the administration of justice and the ultimate interests of consumers. Those concerns are entirely proper, but in my view they are unfounded.

Some rules that regulate the provision of professional services clearly restrict competition in the provision of such services, but are so essential to other aspects of the public interest that one would not expect the OFT to found a market investigation reference on them. For example, the importance of ensuring that professional services are supplied only by those properly qualified to supply them clearly outweighs the restrictions on competition that result from rules requiring doctors or lawyers to be properly qualified. Of course, one may take issue on the question of whether particular qualifying requirements laid down by the regulatory bodies are justified in those terms, but the basic principle is beyond dispute.

Suppose, then, that the OFT was considering the effects on competition of certain Law Society rules, and believed that the restrictions that exist on solicitors entering into partnership with accountants significantly restricted competition. The OFT might take the view, as the Court of Justice did in the Wouters case, that a complete ban on the formation of such partnerships was a reasonable way of maintaining the integrity of the legal profession. On the other hand, it might take the view that it was at least worth exploring in more detail whether there was not some less absolutely restrictive means of achieving the same goal; in other words, whether strict rules governing the conduct of solicitors who entered into such partnerships would not adequately safeguard the interests of clients and the sound administration of justice.

I stress that I cite that as a hypothetical example and that I have no wish to be drawn into a discussion of the competition or public interest effects of any existing professional rules. What matters, I believe, is that that is the kind of thought process that we would expect the OFT to go through with regard to Clause 126 as currently drafted. There is no need for Amendment No. 95, any more than there is any need to include in Clause 126 a provision explicitly permitting the OFT to take account of relevant customer benefits generally when making a reference decision. The power to make market investigation references necessarily involves the exercise of a wide-ranging discretion to take into account all matters that it is reasonable to take into account in the circumstances of any particular case. Given the many markets and issues within those markets that the OFT may have occasion to consider under this legislation, we believe that making special provision for what it should consider in one particular market or in relation to one particular profession, or even specifying that certain matters should be

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considered in all cases, would call the breadth of the OFT's discretion as regards other matters into question.

Moreover, as the OFT makes clear in its draft guidance, when it is considering making a market investigation reference, it will have particular regard to the suitability of a reference as against other investigation or enforcement options, and to the availability of remedies through the market investigation process to any competition problems that it perceives in the market concerned. While we would not wish to prejudge the decisions that the OFT might make in any future proceedings involving rules governing the provision of legal services, there are at least reasons to doubt whether a market investigation reference is likely to be a useful way of dealing with such matters. Those rules are generally made either by statute or by professional associations with a regulatory function, such as the Law Society. Statutory rules that the OFT could address by making its own report and recommendations to government under Clause 7, or any recommendations to change such rules—whether made by the OFT or by the Competition Commission following a reference—would have to be interpreted by the Government in the light of other public interest concerns, such as the administration of justice.

On the other hand, rules made by a professional association may well amount to a "decision of an association of undertakings" within the terms of Article 81 of the EC treaty or Section 2 of the Competition Act 1998. They would thus be more appropriately dealt with by a consideration under the relevant EC law or the Competition Act.

I turn now to the amendments to Clause 129. Let us suppose that the OFT has referred one or more markets for legal services to the Competition Commission and that the commission is considering certain regulatory provisions which restrict competition. If those provisions are imposed by law or are required in order to comply with a legal requirement, it will be for Ministers or those responsible for the requirement to decide whether to implement any recommendations for change which the commission may make. If not, first, the commission will have to consider whether they should be examined by the OFT rather than by itself on the basis that they may be decisions of association of undertakings. Such decisions should be considered either under Article 81, where they affect inter-state trade and where the so-called "modernisation" of EC competition law has given the OFT the power to apply Article 81, or under the Competition Act 1998, where they do not affect inter-state trade.

Alternatively, there may be cases where the Competition Commission should assess the matter further. However, in that event, whether or not a rule is found to have an adverse effect on competition and whether or not it is within the legal power of the commission to do anything about it, we believe that there would be ample scope to consider the public policy justifications for such a rule under the customer benefits provisions.

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Ultimately, the sound administration of justice is inseparable from the quality of the legal services provided. Quality is one of the set of relevant customer benefits which may, in so far as they result from a feature of a market which prevents, restricts or distorts competition, outweigh an adverse effect on competition.

The last amendment in this group—Amendment No. 105—proposes to qualify the reference to "choice of goods or services" in the context of detrimental effects on customers by adding a reference to the "availability" of goods and services. I do not consider that to be necessary. If particular services are less available to customers than they might otherwise be, that must be because the total supply of such services is limited, or because the variety of types of such services is limited, or because the number of different providers of such services is limited.

All those possibilities are covered by the existing drafting. A restriction in total supply will result in higher prices, while restrictions in the types of service available or the number of suppliers on the market are both covered by the concept of choice. Therefore, we do not believe that the amendment adds anything of substance to Clause 129(5).

I hope that the noble Lord will accept that we have considered this issue very carefully. However, we believe that there is currently sufficient within the legislation to protect the whole issue of equality of legal services and the access to them. Therefore, there is no need for the amendments because what they seek to achieve is already built into the legislation.

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