Examination of Witnesses (Questions 920
WEDNESDAY 9 JULY 2003
Lord MacGregor of Pulham Market
920. Can I follow up a point that Lord Acton
was pursuing with you in terms of parliamentary accountability?
I understood all the points you were making about the need for
expertise on the committee if you have a specific committee dealing
with regulators, but can I be quite clear? Do you think that the
present system is not working well enough yourself because there
is not that collective expertise when it is spread over a number
of select committees?
(Sir Derek Morris) It is hard for me
to answer because where I have myself been before a select committee
it has hitherto always been in relation to our competition responsibilities,
not in relation to our effective appeal status in the regulatory
regime. Individual regulators, of course, have appeared. I never
have, so it is very difficult for me to judge quite why that is.
921. We must make our own assessment of
it, I suppose, but the key point you want to put to us is that
this is such a complex area that you need not only a bit of continuity
among the members of the select committee but also, most important,
a body of expertise which does not always exist among the current
specialist advisers to the committees and which is very specific
to the whole competition and regulatory regime?
(Sir Derek Morris) I believe so, yes.
922. The other question is about the fast
track procedure and I have to admit I am no expert on this. I
understand entirely what you were saying in paragraphs 15, 16
and 17 of your memorandum as to why, if there were one, you believe,
in your words, that, "The CC is ideally suited to a fast
track procedure". I understand all of that but I wonder if
you would outline a bit more the pros and cons of having a fast
track regime, as you see it, in what circumstances you would like
it and (and you have already started to talk about this) how you
would discourage delaying tactics that could be used by a fast
(Sir Derek Morris) I have tried to emphasise that
I think a prerequisite of fast track is an agreement to focus
on the disputed elements. I have explained why I can see as it
were a conceptual difficulty about that. Whether it would be possible
to try to address that problem, to have a two-stage process in
which the first stage would be submissions to the Commission as
to what was a proper issue for dispute and in that way narrow
it down and then, if that is quite narrow, have a fast track solution,
I do not know, but it seems to me that that would be worth exploring.
923. So the ultimate judgment on that, before
moving on to the fast track procedure, would be the Commission
satisfying itself that it had got agreement on what the issue
(Sir Derek Morris) Yes, or possibly even make a decision
without agreement on that, which might be a necessary part of
924. And then it is up to the parties to
decide whether they want to take it further?
(Sir Derek Morris) Indeed. On your second part about
how do you ensure that you can maintain fast track, we are considering
this in some detail at the moment because I should add that the
Government is contemplating that the Commission would be the effective
appeal body for code modification decisions by Ofgem. There are
many code modifications in a year, there might be perhaps, who
knows, a dozen appeals a year, and we are looking at the possibility
of effectively dealing with those in six weeks because typically
they are much more focused. The other input from this, if I can
just move to the Enterprise Act for a moment, is that under that
Act we have to deal with mergers very rapidly and we need very
tight case management. The proposal that we are intending to pursue
is that we would agree in the first week of a case a complete
schedule of the inquiry which we would have to keep to and we
would expect the parties to keep to. Under the Enterprise Act
we do have quite significant powers to require information by
a certain date and, if that is not forthcoming and there is no
reasonable reason why, the Act gives us powers to fine the companies.
The figures which have been set by the DTI are, I think, an initial
£25,000 and then £10,000 a day for delay. I think therefore
there are quite strong powers to get the information. Could I
add one other point? This is on the basis of historical experience.
I do not think getting the evidence is the heart of the problem.
The real problem is what I call the vicious circle problem, that
a company will put a particular point to us and then will add
to it the following request: "Will you, O Commission, please
tell us whether you accept this point or not?" If we say,
"We are not going to tell you", then we are immediately
vulnerable at the end of the case to judicial review. Of course
we may say, "We accept that point", and that is the
end of it. If we say, "No, we do not accept it", they
will say, "Please tell us why you do not", and again
we would have to provide that. When we provide that invariably
we get three or four more arguments back as to why our rejection
of their position is wrong, and there at the end it will say,
"And please confirm that you now accept this or not",
and, of course, if we do not, the whole process goes on again.
Almost as a matter of logic there are only three possible outcomes.
One is that we accept, another is that we are judicially reviewed,
or the third is an infinite loop. None of those is an acceptable
outcome and I think companies and their lawyers recognise that
and they are putting us in a position where in effect we cannot
reach an adverse conclusion against them. We find ways to deal
with that which I will not take up your Lordship' time with, but
that is often something that really protracts an inquiry and,
if at any point we say, "Oh, sorry, we simply cannot go on.
We are stopping now", we are vulnerable to the courts. We
have even sometimes said, "Look: we have a deadline. It has
been given to us. We have only got another two weeks", or
whatever, and it has been pointed out to us that we have powers
to request an extension, and we could be judicially reviewed if
we did not properly treat their points purely because of a deadline
which is not unalterable. It goes back to my earlier point. There
is an agenda behind all this, which is trying to ensure that companies
get the results they wish to achieve. I understand that but the
regulatory regime needs to be firm against it.
925. Does that lead you to argue that at
the moment there are not the final mechanisms to prevent that
process happening and therefore there is a problem about having
a fast track procedure altogether?
(Sir Derek Morris) I think it would be a problem.
We are seeking to deal with the problem in relation, for example,
to mergers by having statutory backing for saying, "If we
do not have information or argument by a certain time then we
will regard it as not relevant to the case", in effect, "You
are out of time", and that may help. On a number of occasions
in this vicious circle we have gone back and said, "We believe
we have given you sufficient argument and evidence and we are
not proceeding further on that track", and to date we have
not been judicially reviewed on that, but it is a constant tension
and there is no clear statutory backing for a means of dealing
Lord Jauncey of Tullichettle
926. You presumably have the power in that
you do make your own rules and procedures, do you not?
(Sir Derek Morris) Yes.
927. Do I understand from what you say at
paragraph 15 that at the moment you could not have a fast track
procedure for dealing with applications because you are prohibited
by statute? Is that the position?
(Sir Derek Morris) No. De facto we could have
a fast track but it would only work at the moment by agreement
of the parties that they would narrow down the substance of the
dispute. If they come to us and say, "We dispute this element,
this element, this element", a fast track is not really possible.
928. But supposing the customer, the person
who is regulated, comes along and says, "I am only really
interested in one point here", and the regulator presumably
will say, "Oh, no, that is of no relevance because you cannot
deal with this point in isolation". We have evidence rather
along these lines from people who have said, "It is very
expensive if you have got to go into the whole matter all over
again", when they are really only concerned with one point,
and the regulator, as you have rightly said, says, "Well,
change". Is there any reason why you should not have a preliminary
hearing simply on what is the question (or questions) at issue,
and then give a ruling on that to the effect that you are only
interested in hearing evidence on one particular matter? You would
have to be pretty certain that there really only was one issue
but is there anything to stop you doing that at the moment?
(Sir Derek Morris) We could try it at the moment.
There is nothing procedural or statutory to stop us, but if at
the present time the regulator said, "I believe that this
challenge unpicks the whole price control and I insist on that
point", and we said, "We are going to consider that
very quickly", and perhaps after a week or two we said, "We
do not accept that", again, I think we would be vulnerable
to judicial review because under the present regime we are required
to give due process and prompt consideration to any reasonable
point put to us. However, you could envisage under a new regime
with proper statutory backing that there could be a two-stage
process. There could be an explicit provision for fast track and
there could be specific provision for the Commission to have an
early stage to determine whether fast track was appropriate or
not in the particular circumstances.
929. You must have a fair amount of discretion
in reaching a decision and you could not be challenged on every
exercise of that discretion. It is only if your discretion was
unreasonably exercised that you would be challenged by judicial
review, is that not right?
(Sir Derek Morris) That is right.
930. It would not necessarily be unreasonable
if you took the view, and there were reasonable grounds for so
doing, that it was appropriate to consider one or two matters
(Sir Derek Morris) My Chief Legal Adviser is anxious
to come in.
(Mr McHenry) I wonder, my Lords, if I could just say
briefly that the way the system works in all these regulatory
statutes is that we receive an order from the regulator to pursue
a licence modification reference and that effectively is our warrant
to proceed. One risk about our over-narrowing our investigation
would be not necessarily a challenge about unreasonable exercise
of discretion as you have been referring to, Lord Jauncey, but
more that we have acted unlawfully because we have not operated
within the scope of the statute under which the licence modification
reference was made. That is the inhibiting factor on Sir Derek
and his colleagues when they are dealing with these inquiries.
931. As I understand it, the Commission
itself is fairly large as a body and you form panels to undertake
a particular inquiry.
(Sir Derek Morris) That is right.
932. Is there a particular mechanism you
employ to determine who serves on a particular panel? Is it geared
to the nature of the inquiry?
(Sir Derek Morris) Yes. If I could give one small
bit of background, there are about 50 members. They are part-time.
They are virtually all what I would call expert; that is, they
are lawyers or economists, industrialists, have a finance or accounting
background or some have more of a consumer background, but they
essentially have relevant expertise. When a case comes in I typically
appoint five members and the criteria for that are, first, that
I need to get that spread of disciplines reflected; secondly,
they need to be available, ie, not already on a case; thirdly,
and this is much more important than is generally recognised,
there must be no conflict of interest of any sort. I will not
go into a lot of detail, but may I tell you that it is extremely
rare for me to identify five people initially and find that none
of them has a conflict of interest. Sometimes I have had cases
where four of the five had some sort of conflict. It is a very
severe rule. Finally, one wants to as it were mix members about.
Typically I find that by the time I have applied those four criteria
there is very little and often no discretion as to who I appoint.
If there does remain some discretion I typically then use the
principle of who has gone longest since the last appointment.
That is how it works.
933. Would there be a case for increasing
the number of commissioners?
(Sir Derek Morris) We did increase up to 50 and I
thought that that was fine but, with the expected workload and
the increasing intrusion of the conflict of interest criterion,
I suspect we may need to go higher.
934. You used the term "consistency
without rigidity". Does that mean therefore that you tend
not to be bound by precedent but none the less could there be?
(Sir Derek Morris) We are not bound by precedent,
that is true. As I say, best practice evolves, but we do regard
it as a legitimate expectation of parties that we will be predictable
and consistent and we do put a huge amount of effort into that.
Past reports form an important basis for future analysis and we
always invite the parties appearing to comment on that. I would
add two things. First, a number of the regulators are on record,
whether or not we have upheld their views, as saying that we have
provided across a number of sectors a very large measure of consistency,
and I do believe that is true. I only know of one example since
privatisation started in 1984 where we explicitly and consciously
reversed a previous methodological position and we explained why
there were very good reasons for it and were not challenged on
935. So if a legitimate expectation builds
up people refer to the precedent and therefore presume that the
same will happen next time and you have to provide very clear
reasons why you have departed from that?
(Sir Derek Morris) That is exactly right.
Chairman: I am conscious of the time. We are
extremely grateful to all three of you for coming here this afternoon
and answering our questions. It has been extremely helpful to
us; the answers have been very clear and will be very valuable
for our purpose. Thank you very much indeed.