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Lord Kingsland moved Amendment No. 131ZA:
- Page 111, line 19, leave out "whose interests are materially affected by it" and insert "with a sufficient interest in that decision"
The noble Lord said: I hope that after the statement by the Minister about the differences between the DTI and the regulator, the Minister will find my amendments relatively uncontroversial. I shall begin by speaking to Amendments Nos. 131ZC and 131B, before going on to Amendment No. 131C and following the rest sequentially, beginning at Amendment No. 131ZA.
In my submission, the Bill fails to provide an effective right of appeal against Ofgem's decisions under certain industry codes. In our view, that is a very serious deficiency. Industry codes, such as the balancing settlement code, the connection and use of system code and the gas network code, set out the fundamental trading and governance rules for competitive market operations in the gas and electricity industries. Since each gas or electricity licence will contain a condition requiring a licensee to be a party to, and comply with, the provisions in the relevant code, any contravention of the code by the licensee is equivalent to a breach of licence, against which Ofgem can take enforcement proceedings.
In addition, modification decisions taken under those codes by Ofgem can have a commercial impact on licensees that is at least equivalent to, and sometimes much greater than, changes to the conditions of their operating licences. It must follow that Ofgem's code modification decisions should be exposed to the possibility of challenge by a process that
is at least as rigorous and thorough as that operated by the Competition Commission to resolve disputed licence modifications. That process, first introduced in the Telecommunications Act 1984, is widely accepted as being both fair and final. However, the Energy Bill does not achieve an analogous process.The Bill provides only a statutory codification of some of the existing principles of judicial review. We consider that something closer to a full and genuine right of appeal on the merits is justified. The recent DTI consultation paper on appeals mechanisms, entitled Strengthening the Transparency and Accountability of the Gas and Electricity Industry Code Modification Process, published in April 2003, clearly accepted that judicial review does not provide, and is not equivalent to, a right of appeal on the decisions of Ofgem. The DTI subsequently concluded, in a document entitled Government Response, published in November 2003, that the transparency and accountability of the code modification process would be improved by the creation of a right of appeal.
In fact, the Energy Bill fails to provide a right of appeal on the merits. Clause 146(4) gives four grounds on which an appeal against an Ofgem decision may be allowed. In my submission, it is wrong for market participants in the energy sector to be deprived of a legal right of appeal to an independent body on the merits of the key decisions taken by Ofgem, when Parliament has recognised that that is required under other legislation that addresses similar issues in other major regulated industries. The gas and electricity industries have had a legitimate expectation that any rights of appeal provided by the Energy Bill would at least be effective rights. That expectation should be met.
I understand that the officials in the DTI Bill team have claimed that Clauses 144 to 148, while not providing any right of appeal on the merits of a decision, create something more substantive than judicial review. However, we do not find that anywhere in the drafting of those clauses. Nor is it spelt out anywhere in the Explanatory Notes to the Bill, or in any DTI consultation paper. Very clear and specific drafting and clear Explanatory Notes would be required to create something that achieves what the DTI is reported as wanting to achieve.
The very use of the word "appeal" in the Bill is positively misleading. In our view, the appeal provided for under the Bill should be a genuine appeal made on the merits of the case. That could be achieved simply by following the approach taken at Section 192 of the Communications Act 2003, which provides a right of appeal from Ofcom. That Act properly relies on the language of appeal to create a jurisdiction in which the decisions of Ofcom may be reconsidered afresh by the relevant tribunal. That Act requires appellants to specify only whether they allege errors of fact or law in the original decision, or whether they are complaining about how Ofcom has exercised its discretion.
I now turn to our two amendments on this matter. Following the language of the Communications Act, we propose the deletion of Clause 146(3) and (4) from the Bill and the insertion in Clause 144 of a new subsection which states:
- "In applying to the Competition Commission for permission to bring an appeal under this section, the grounds of appeal must be set out in the application in sufficient detail to indicate—
- (a) to what extent (if any) the appellant contends that the decision appealed against was based on an error of fact or was wrong in law or both; and
- (b) to what extent (if any) the appellant is appealing against the exercise of a discretion by GEMA".
In line with the approach taken in the communications industry, the amendment would require appellants to specify only whether they allege an error of fact or law in the original decision or whether they are complaining about how the authority has exercised its discretion.
On the actual language of the Bill, even looking at the Government's purported solution from the narrow grounds of the common law of judicial review, we find that the Government's provisions fall well short of what is required. The list of grounds at Clause 146(4), although derived from judicial review, are an incomplete reflection of the grounds of challenge available in that form of action. Notably, the four categories mentioned do not include the unreasonableness of the decision, even in the limited sense set out in the textbook Wednesbury case, or lack of proportionality. Indeed, the absence of the latter criterion may, in certain circumstances, have the effect of rendering the appeal procedure incompatible with the requirements of the Human Rights Act 1998, contrary to the formal statement made by the noble Lord, Lord Whitty, on the face of the Bill.
Those limitations are significant because judicial review is a discretionary remedy, which is not generally available if a specific statutory alternative exists. That means that the effects of the Bill are, first, to remove an existing right and, as it does not appear to replace it by something that is at least equivalent, secondly, to substitute an inferior right. Therefore, the overall effect is to derogate from the rights of the industry and of consumers in an area where the Government have accepted that they most need to be enhanced. In that context, we have provided a second, alternative, more modest amendment to Amendments Nos. 131ZC and 131B in the shape of Amendment No. 131C, which inserts the criteria of reasonableness and proportionality.
We regard this amendment as being less desirable than the first but nevertheless enhancing the rights of any appellant. No appeals mechanism under the Bill as it stands, whether it will be dignified by the description of appeal or otherwise, will be able effectively to strengthen the rights of energy industry participants, including consumers, in relation to regulatory decisions, unless it provides for the appeals body to conclude that, in its opinion, Ofgem's discretion should have been exercised differently in all the circumstances of the case.
I now turn more briefly, as I am sure your Lordships will be relieved to hear, to deal with the remaining amendments. As far as Amendments Nos. 131ZA and 131ZB are concerned, Clause 144(3) provides that those who have the right to appeal against a decision of the authority must be "materially affected" by the decision. The more usual approach to the question of eligibility in this sort of context is to require that those with a right to appeal must have a "sufficient interest", something which has been elaborated by case law and interpreted generously.
The focus in the Bill on being materially affected rather than having sufficient interest suggests that the policy objective is to restrict, significantly, the class of persons able to bring an appeal. For example, there is no guarantee under the Bill's approach that all the parties to an industry code would be equally entitled to appeal in relation to a particular decision. This would be, in my view, an erosion of rights which is undesirable as a matter of principle. Accordingly, therefore, the amendments aim to ensure that persons with a sufficient interest in the regulatory decision will be entitled to appeal against it.
On Amendment No. 131ZD, one of the defining features of those decisions of the authority that are to be subject to appeal is that they must be taken in relation to a document that the Secretary of State has designated, by order, under subsection (2)(b) of Clause 144. Subsection (6) puts a duty on the Secretary of State, before making that order, to consult, first, Ofgem, and, secondly, such other persons as he considers appropriate. This is far too discretionary.
Given the crucial importance of the designating power, it is only right that the parties to the documents to be designated—in other words, the market participants—should be clearly specified as a category of persons that must be consulted in all cases. The appropriate formula would therefore be that the Secretary of State be required to consult: first, the authority; secondly, the parties to the documents that he is minded to designate under subsection (2)(b); and, thirdly, such other persons as he considers appropriate. In my submission, our amendment would achieve that result.
As to Amendments Nos. 131ZE and 131ZF, Schedule 22 sets out in meticulous detail the procedure to be followed for appeals raised under Clause 144. Schedule 22(1)(3) requires an appellant to apply to the Competition Commission for permission to bring an appeal within 10 days of the relevant Ofgem decision. This requirement has been set in such a narrow time limit as to be unworkable in practice. In effect, within the space of 10 working days parties must assimilate the Ofgem decision and the reasons for it; take advice on the prospects for successful appeal; obtain a senior-level decision on whether or not to appeal; and compile a full and complete statement of their case.
The 10-day time limit would be tight, even if that limit related only to the time within which an indication of intent to appeal had to be given. No
company will lightly commence an appeal and is most unlikely to require board level approval for any such decision. In short, this time limit is wholly unrealistic.Furthermore, it contrasts unfavourably with the 20 working days given to the authority later in the schedule to undertake the lesser task of submitting its own observations on the appeal, and it takes no account of the dire consequences of paragraph 7 of the schedule. The effect of paragraph 7 is to remove any certainty that, at a later stage, an appellant will be able to raise issues that were not outlined in his initial request for permission. The result, in practice, is that it will be essential for the request for permission to contain a full and complete statement of all the bases for appeal.
While it is of course desirable for the appeals process to be undertaken and conducted swiftly, the particular time requirement of paragraph 1(3) is severely overly restrictive and likely to be unfair in its operation and to be prejudicial to appellants. It is inappropriate for the period of time within which an application for permission to appeal must be made to be anything less than 20 working days.
In addition, it is not good practice to provide that the timetable starts to run from the earliest day on which the decision is published by the authorities. There are many ways to publish a decision, all of which are not guaranteed to draw the matter to the attention of the relevant parties. It is therefore important that the time should not start to run until the decision has been published in such a way that it is likely to be seen by all potential appellants.
I turn, finally, to Amendment No. 131A. Schedule 22(14)(2) allows the Secretary of State to modify by order any time period specified for the purposes of the appeals procedure set out in the schedule, subject only to the negative resolution procedure.
The appeals provisions of the Bill undermine and weaken existing legal rights by effectively removing parties access to action by way of judicial review for the reasons I have already explained. It is therefore quite unacceptable for an order-making power, which could be used restrictively, further to limit legal rights to be subject only to negative resolution. At the very least, the power should be subject to a no lesser safeguard than that of the affirmative procedure. It would be even better to subject the power to the special procedure for delegated power that is provided for at Amendment No. 146B, and so Amendment No. 131A is framed accordingly. I beg to move.
4 p.m.
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