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Lord McIntosh of Haringey: My Lords, I have a number of difficulties with the amendment and with the arguments put forward. My fundamental area of disagreement is with the assumption that disqualification is somehow a form of punishment. It is not intended as a punishment; it is intended to protect the public from directors whose actions or omissions have shown them to be unfit to be involved in the management of a company.
Breaches of competition law do real harm to consumers and other businesses and may indicate that the people involved are unfit to be company directors. This is not so different from the White Paper published in July 2001, which referred to breaches of UK and EC competition law. The clause defines a breach of competition law as a breach of either the Competition Act 1998 prohibitions or Articles 81 and 82 of the EC treaty.
Disqualification will not be automatic. In order for a disqualification order to be made, the court must be satisfied that two conditions have been fulfilled. First, the company must have committed a breach of competition law. As I have stated, that is defined as either a breach of the prohibition on anti-competitive agreements contained in Chapter 1 of the Competition Act 1998 or Article 81 of the EC treaty, or a breach of the prohibition against abuse of a dominant position in Chapter 2 of the Competition Act 1998 or Article 82 of the EC treaty.
Secondly—this is most important—the court must consider that the person's conduct in respect of the competition breach makes him unfit to be involved in the management of a company. In considering whether that condition is fulfilled, the court will consider whether the director was actively involved in the competition breach; or while not actively involved in the breach, the director had reasonable grounds for suspecting the breach but did nothing; or whether the director did not know but should have known about the competition breach. If under those definitions someone is found by the court to be unfit to be involved in the management of a company, I find it difficult to argue on what basis there should be no disqualification of that director.
There are a number of safeguards in the clause. It is for the court to decide on the facts of each particular case whether or not the person is fit to be involved in the management of a company. If the court is not satisfied it will not make a disqualification order. In addition, before any disqualification application can be made, the director must be given notice and an opportunity given to make representations.
We have to consider this in perspective. The vast majority of companies in business operate responsibly. The disqualification provisions will potentially apply only to the small minority of directors whose companies have been found to have breached competition law. It is right that disqualification should be available to protect the public where a director's conduct in breach of competition law has shown him to be unfit to be involved in the management of a company.
I turn to the question raised regarding a board of directors as a whole. A board of directors might resolve that the company should engage in an activity which constituted a breach of competition law. I suggest that the OFT would view that as a particularly serious case. It might consider applying for orders against each member of the board of directors of the company in question, but when doing so it is likely to take into account the conduct of each individual
director in relation to that resolution. However, that is in those cases where there is a formal resolution of the board which is thought to be in breach of competition. Therefore, it is possible for a whole board to be disqualified, but only under the specific circumstances I have outlined. Fundamentally, the proposal to remove this clause suggests that a person who is found by the court to be unfit to participate in the management of a company should not be disqualified. I cannot believe that that is the case.
Lord Hunt of Wirral: My Lords, I always believe that it is not a good idea for those responding to debates to move to an extreme position. I shall make two points. First, I shall look again at last year's White Paper. However, it was certainly my understanding that in that document the Government suggested that disqualification would be available only to those who have committed a serious breach of competition law. As I understand it, the Minister is saying that that is not the case. I do not have the White Paper to hand; obviously I should like to re-read it to see whether he is correct.
Lord McIntosh of Haringey: My Lords, I do not have the White Paper either. I do not want to deny what the noble Lord, Lord Hunt, says. I base my argument not on that, but on the unfit argument.
Lord Hunt of Wirral: My Lords, the Minister wriggles. He even denies that he wriggles, but he does, because that was my basic question. If the Government in their White Paper said that disqualification would be available only for those who committed a serious breach of competition law, why have they changed their mind? The Minister rested his case on the fact that he did not believe the Government had changed their mind. We need to reflect on that matter.
I endorse the remarks of my noble friend Lord Hodgson of Astley Abbotts: who would be a non-executive director in these turbulent times? My good friend at university Mr Derek Higgs is considering that question at present. He is eminently well qualified to produce recommendations. But that is a key question given the state of law on liability; the way in which the corporate veil is being lifted; the extent of responsibilities as well as rights; the Turnbull report and all the previous reports; and now a criminal sanction and possible disqualification where a non-executive director might not have known of the anti-competitive behaviour, but should have done.
There are all sorts of problems, but the Minister has taken a great deal of time and trouble in responding. I would like to take an equal amount of time to consider the effect of what he said. In those circumstances I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Grocott: My Lords, I beg to move that consideration on Report be now adjourned.
Moved accordingly, and, on Question, Motion agreed to.
City of London (Ward Elections) Bill
Reported from the Select Committee without amendment and a Special Report made; the Chairman of Committees directed pursuant to Private Business Standing Order 121(1)(b) that the Bill be not recommitted to an Unopposed Bill Committee; it was ordered that the Special Report be printed. (HL Paper 171)
- House adjourned at seventeen minutes before midnight.
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