House of Commons - Explanatory Note
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Clause 124: Ministerial power to make references

290.     Under FTA 1973, the Secretary of State (acting alone or jointly with other Ministers) and the DGFT each have independent powers to make monopoly references. Certain sectoral regulators have concurrent powers of reference with the DGFT conferred by the relevant utility statutes in respect of the areas that they regulate. However, the DGFT's and sectoral regulators' powers of reference are subject to exclusions in certain sectors and a limited power of veto on the part of the Secretary of State. Under the market investigations regime, there will be no such limitations on the OFT's power of reference, and the Secretary of State (acting alone or jointly with other Ministers of the Crown (subsection (5)) retains the ability to make market investigation references only as a reserve power.

291.     Subsections (1)-(3) set out the circumstances in which this reserve Ministerial power of reference may be used. Like the OFT and sectoral regulators (clause 123), Ministers must have reasonable grounds for suspecting that a feature or combination of features of a market are preventing, restricting or distorting competition in the supply of specified goods or services before they can make a reference (subsection (3)). However, Ministers must additionally either be dissatisfied with the OFT's decision not to make a reference (subsection (1)); or they must be satisfied that the OFT is aware of whatever evidence has led them to form a suspicion and is not likely to reach a decision as to whether or not to make a reference within a reasonable period of time (subsections (2) and (3)).

292.     Subsection (4) provides that references may be made by more than one Minister of the Crown acting jointly, so long as the Secretary of State is one of the Ministers making the reference.

Clause 125: Contents of references

293.     This clause prescribes what a reference made under clause 123 or clause 124 must contain. Any authority making a market investigation reference must also publish its reasons for doing so (see further clause 164).

Determination of references

Clause 126: Questions to be decided on market investigation references

294.     This clause sets out the questions that the CC must answer in the course of conducting a market investigation under Part 4.

295.     Subsections (1)-(3): the first task of the CC is to determine whether any feature, or combination of features of a market for the goods or services specified in the reference, prevents, restricts or distorts competition in connection with the supply or acquisition of goods or services in the UK: where this is the case, there is an 'adverse effect on competition'.

296.     Subsection (4)-(5): where the CC identifies one or more adverse effects on competition, it must further decide what action should be taken (either by the CC itself, or others - including firms in the market concerned, Ministers and other public authorities) to remedy, mitigate or prevent it or them. The CC must also consider what action it or others should take to remedy, mitigate or prevent any 'detrimental effects on customers' (in the form of higher prices, lower quality or less choice of goods or services, or less innovation in relation to goods or services in any UK market) in so far as they have resulted from, or may be expected to result from, any adverse effect on competition that it has identified.

297.     Subsection (6): in deciding what steps should be taken under subsection (4), the CC is to have regard to the need to achieve as comprehensive a remedy as is reasonable and practicable. Thus, all other things being equal, a remedy that, for example, removes an adverse effect on competition will be considered more comprehensive than one that only removes detrimental effects on customers resulting from that adverse effect, since by removing the adverse effect, the CC will also (at least so far as is within its power) remove the detrimental effect on customers. To that extent, there is a presumption in favour of remedial action that deals directly with adverse effects on competition over action that is directed specifically at detrimental effects on customers. The requirement to have regard to reasonableness and practicability means, inter alia, that the CC must, in relation to each proposed remedy, consider what effect it will have on the future conduct of firms, how it will interact with any other proposed remedies, and whether the adverse effect(s) or customer detriment(s) that it was designed to address are sufficiently serious for their removal or mitigation to justify whatever costs and disruption to businesses and others will be involved in the implementation of that remedy.

298.     Subsections (7) and (8): in considering what steps should be taken under subsection (4) the CC may further have regard to any customer benefits (in the form of lower prices, or higher quality or greater choice of goods or services, or greater innovation in relation to goods or services in any UK market) arising from the relevant feature or features of the market that have given rise to adverse effects on competition, provided that the benefit has accrued, or may be expected to accrue within a reasonable time, and was or is unlikely to accrue without the feature or features concerned.

Clause 127: Variation of market investigation references

299.     This clause allows the authority that has made a market investigation reference, after consultation with the CC, to widen or narrow the scope of the CC's investigation while it is in progress. The CC itself may ask the OFT or other referring authority to vary the market investigation reference. A variation will be effective immediately and any variation made to the market reference will have no impact on the statutory timetable for the investigation - i.e. the CC must still conclude their investigation within two years of the date on which the original reference was made (see further clause 129).

Clause 128: Investigations and reports on market investigation references

300.     This clause prescribes that the CC must publish a report on a market investigation reference within two years of the date on which the reference was made. Subsection (2) prescribes what the report must contain.

301.     Subsections (4)-(5) provide that, as well as publishing its report, the CC must give a copy of it to the authority who made the reference (OFT or Minister, as the case may be). Where the reference could have been made either by a relevant sectoral regulator or the OFT, the report is also to be given to whichever of the two authorities with concurrent powers of reference did not make the reference.

302.     Subsections (7) and (8) list the sectoral regulators who have concurrent powers to make market investigation references on the same basis as the OFT in the areas that they regulate ('relevant sectoral regulators') and the provisions of 'relevant sectoral enactments' that (as amended by Part 2 of Schedule 8) confer these concurrent powers on them. The provisions governing concurrency between the OFT and relevant sectoral regulators, which are to be found in the sections of the relevant sectoral enactments, are the same as under the FTA 1973 monopolies regime: in particular, the OFT and the relevant sectoral regulator concerned must consult each other before either makes a reference.

Clause 129: Time-limits for market investigations and reports

303.     This clause sets out the statutory maximum period for a market investigation. Initially this is to be set at two years. A market investigation report shall be prepared and published within the statutory maximum period after the reference is made. Subsection (3) gives the Secretary of State a power to alter by order the statutory maximum, but not to extend it beyond two years. The making of such an order by the Secretary of State will not affect the statutory maximum period applicable to any investigation that is the subject of a reference made before the date of the order.

Clause 130: Duty to remedy adverse effects

304.     This clause provides that, where the CC has published its report within the statutory time-limit and has found an adverse effect on competition, it must take such action as it considers reasonable and practicable to remedy, mitigate or prevent that adverse effect and/or any detrimental effect on customers so far as it may have resulted from, or may be expected to result from, the adverse effect on competition. The duty to remedy expressed here is qualified by the same considerations (comprehensiveness, reasonableness and practicability, and discretionary consideration of customer benefits) as the analysis of remedies prescribed by clause 126.

305.     Subsection (3) provides that, unless there has been a material change of circumstances since the preparation of the CC's report, or unless it has special reason for deciding otherwise, any action taken by the CC must be consistent with the course of action decided on under clause 126(4)(c), and set out in its report under clause 128.

306.     Subsection (6) provides that, where the CC has found that a detrimental effect on customers may be expected to result from a particular adverse effect on competition, but that no detrimental effect on customers has yet resulted from that adverse effect, then the CC may only take action to remedy, mitigate or prevent the detrimental effect that may be expected to arise by remedying, mitigating or preventing the adverse effect on competition.

Chapter 2: Public interest cases

307.     Chapter 2 (clauses 131-145) establishes a mechanism that allows the Secretary of State to intervene in cases where she considers that her intervention is justified by wider public interest considerations. This arrangement operates independently of the Ministerial power to make references (see clause 124). Where an 'intervention notice' is in force, the Secretary of State's approval is required before the acceptance of undertakings in lieu of a reference, and the Secretary of State, rather than the CC, becomes the decision-taker on remedies after a CC investigation.

Intervention notices

Clause 131: Public interest intervention by Secretary of State

308.     This clause provides for the Secretary of State to claim an interest in a case by serving an intervention notice on the grounds that it raises a public interest consideration. The Secretary of State is limited to raising issues that are already specified as public interest considerations in clause 145 or those that the Secretary of State thinks should be specified. Subsection (6) ensures that, where the Secretary of State has raised any non-specified issue in an intervention notice, she will move to specify that issue in legislation as early as practicable.

309.     Subsection (1) allows the Secretary of State to give an intervention notice to the CC in the first four months after a market reference is made. Subsection (2) allows the Secretary of State to give an intervention notice to the OFT when the OFT is considering whether to accept or to vary undertakings in lieu of a reference.

Intervention notices under section 131(1)

Clause 132: Intervention notices under section 131(1)

310.     This clause sets out the content requirements of an intervention notice under clause 131(1) and provides when any such intervention notice will be deemed to be in force.

311.     Subsection (1) provides that intervention notices must include certain details, including which case they relate to, and which public interest considerations may be relevant.

312.     Subsection (3) provides that an intervention notice will come into force as soon as it is given. Subsections (2), (3) and (4) provide that an intervention notice will cease to be in force once the role of the Secretary of State in relation to that case is complete (either because she has acted, or is prevented from acting in a number of circumstances set out in subsection (4)).

Clause 133: Questions to be decided by Commission

313.     This clause sets out the issues to be considered by the CC in a market investigation case where an intervention notice is in force.

314.     In addition to the issues that must be considered by the CC in relation to a 'competition-only' market investigation (see clause 126), the CC should consider what course of action would be appropriate in the light of any relevant public interest considerations.

Clause 134: Investigations and reports by Commission

315.     This clause provides that the CC should conduct investigations and prepare a report on a market investigation reference where an intervention notice is in force. The report should include reasoned decisions on those issues that the CC is obliged to consider in such cases.

Clause 135: Publication etc. of reports of Commission

316.     This clause sets out how different types of reports should be dealt with when there is an intervention notice in force.

317.     Where the CC has concluded that there is no adverse effect on competition, or that there is an adverse effect on competition but that no remedies should be imposed, the CC shall publish its own report. This is because there is no further role for the Secretary of State to play.

318.     Where the CC has concluded that there is an adverse effect on competition and that remedies would be appropriate, the CC shall pass the report to the Secretary of State so that she might consider the impact on relevant public interest consideration(s) of the remedies to the adverse effect on competition. Where the Secretary of State takes the decision on remedies, she will publish the report.

319.     When the report is published, a copy should go to the OFT, the appropriate sectoral regulator if relevant, and - if different - the Minister that made the reference.

Clause 136: Time-limits for investigations and reports: Part 4

320.     This clause ensures that the CC should prepare its report and, depending on its decision, either publish it or give a copy to the Secretary of State within two years. Provision is made for the Secretary of State to reduce the two-year period by order (as under clause 129 above). The making of such an order by the Secretary of State will not affect the statutory maximum period applicable to any investigation that is the subject of a reference made before the date of the order.

Clause 137: Restrictions where public interest considerations not finalised: Part 4

321.     This clause provides that the CC's conclusions as set out in its report should not rely on any new public interest consideration cited in the intervention notice, unless that consideration has been approved by Parliament within a given period. This ensures that the Secretary of State is prevented from determining the outcome of a case on grounds that Parliament has not recognised.

322.     The CC will be able to consider a public interest consideration cited in a relevant intervention notice only if Parliament has approved an order seeking to create such a public interest consideration, or for a period of up to 24 weeks from the date of the intervention notice while Parliament has not rejected such an order. Where Parliament has not yet decided upon such an order, the CC will be prevented from giving its report to the Secretary of State for a period of 24 weeks from the date of the reference.

Clause 138: Decision of Secretary of State

323.     This clause sets out how the Secretary of State will proceed on receipt of a report from the CC in a case raising any public interest consideration(s).

324.      The Secretary of State will decide whether the CC's remedies to the adverse effect on competition would affect any relevant public interest considerations. Subsections (3) and (4) ensure that the Secretary of State must make and publish this decision within 90 days of receipt of the CC's report, or the report reverts to the CC allowing it to implement its preferred remedies.

Clause 139: Remedial action by Secretary of State

325.     This clause sets out that, where the Secretary of State has decided that the CC's preferred approach would affect any relevant public interest considerations, she may take action to address the adverse effects on competition, with regard to what is appropriate in light of the relevant public interest considerations.

326.     Subsection (6) provides that, where the CC has found that a detrimental effect on customers may be expected to result from a particular adverse effect on competition, but that no detrimental effect on customers has yet resulted from that adverse effect, then the Secretary of State may only take action to remedy, mitigate or prevent the detrimental effect that may be expected to arise by remedying, mitigating or preventing the adverse effect on competition.

Clause 140: Reversion of the matter to the Commission

327.     This clause sets out that the CC should act where the Secretary of State either fails to make a decision on whether public interest considerations are affected, or decides that no public interest considerations are relevant. The CC will publish its report (and give a copy to relevant bodies) and will be under a duty to implement its preferred remedies as set out in that report.

328.      Where the case has reverted to the CC to implement its preferred remedies under this clause, subsections (7)-(10) provide that the CC can only take action in line with the preferred remedies as set out in its report. Otherwise, it needs to obtain the Secretary of State's agreement to any alternatives. However, the Secretary of State can only withhold her agreement if she believes that the alternative approach would adversely affect the public interest. She may have regard only to the competition concerns identified by the OFT and any relevant public interest considerations.

Intervention notices under section 131(2)

Clause 141: Intervention notices under section 131(2)

329.     This clause sets out the content requirements of an intervention notice given to the OFT under clause 131(2) and provides for when any such intervention notice will be deemed to be in force.

330.     Subsection (1) provides that such intervention notices must include certain details, including which case it relates to, and which public interest considerations may be relevant.

331.     Subsection (3) ensures that an intervention notice will come into force as soon as it is given. Subsections (2), (3) and (4) provide that an intervention notice will cease to be in force once the role of the Secretary of State in relation to that case is complete (either because she has acted, or is prevented from acting in a number of circumstances set out in subsection (4)).

Clause 142: Power of veto of Secretary of State

332.     This clause provides that, if an intervention notice on undertakings-in-lieu is in force, the Secretary of State must agree to any undertakings before the OFT accepts them. The Secretary of State can only withhold her agreement if she believes that the undertaking could adversely affect the public interest. She may have regard only to the competition concerns identified by the OFT and any relevant public interest considerations.

333.     Subsection (5) provides that, where new public interest consideration(s) specified in the intervention notice have not yet been approved by Parliament, the Secretary of State is prevented from giving her agreement on undertakings-in-lieu until either the Parliamentary procedure has run its course or 24 weeks have passed from the date of the intervention notice (whichever is the shorter).

Other

Clause 143: Further interaction of intervention notices with general procedure

334.     This clause ensures that any case is dealt with either on the 'competition-only' track or the 'public interest' track at any one time. However, where a case has been subject to an intervention notice, but has now reverted to the 'competition-only' track, the statutory maximum timetable for the CC to publish its report is extended by 20 days.

Clause 144: Certain duties of OFT and Commission

335.     This clause ensures that the OFT and the CC pass any relevant information to the Secretary of State.

336.     Subsection (1) provides that the OFT will inform the Secretary of State if it believes that any case it is considering raises any issue specified in clause 145 that the Secretary of State would not consider immaterial. Subsection (2) provides that, in the four months following a market reference, the CC will inform the Secretary of State if it believes that any issues specified in clause 145 are raised that the Secretary of State would not consider immaterial. These provisions are intended to alert the Secretary of State to cases where she might wish to intervene on public interest grounds.

337.     Subsection (3) provides that the OFT and the CC must pass on to the Secretary of State any representations that they receive about the need for the Secretary of State to specify a new public interest consideration. This provision ensures that the Secretary of State is made aware of any calls for new public interest considerations to be specified in legislation.

Clause 145: Specified considerations: Part 4

338.     This clause lists the relevant public interest issues that may be specified by the Secretary of State in an intervention notice. Subsection (1) provides that 'national security' is the only consideration specified. Subsection (3) allows the Secretary of State, by order, to add to this list.

Chapter 3: Enforcement

339.     Chapter 3 (clauses 146-159) and Schedule 7 set out the enforcement powers of the OFT, CC and Secretary of State during and after a market investigation reference. As for the merger regime, enforcement takes two forms: undertakings and orders. Undertakings are agreements voluntarily entered into by the parties to a merger. Once agreed, these become legally-binding and enforceable in the courts. Orders are made by the authorities and prohibit the parties specified in the order from doing something or specify that they must take certain action. Under FTA 1973, orders were made by statutory instrument; the CC will now have the power to make orders on its own authority.

Undertakings and orders

Clause 146: Undertakings in lieu of market investigation references

340.     This clause allows the OFT to seek and accept undertakings from one or more persons in place of making a market investigation reference. This provision enables the OFT to avoid making a reference to the CC in certain cases. The OFT has to be confident it has identified what the competition problem is in a market that it would otherwise have referred. It also needs to persuade the relevant parties to agree to a course of remedial action to address the competition problem it has identified. It can then accept undertakings in lieu of making a market investigation reference. This provision mirrors the existing power in section 56A FTA 1973 for the Secretary of State to accept undertakings-in-lieu, but with responsibility transferred to the OFT.

Clause 147: Undertakings in lieu: procedural requirements

341.     This clause sets out the consultation process for accepting or varying an undertaking in lieu of a market reference. Undertakings-in-lieu require their own procedures because the OFT is required to set out, prior to accepting the undertaking, the terms of the market reference that it would otherwise have made.

Clause 148: Effect of undertakings under section 146

342.     This clause specifies that a market investigation reference on the same subject cannot be made for twelve months if the OFT has accepted undertakings in lieu of a reference.

Clause 149: Interim undertakings: Part 4

343.     This clause applies following the publication of the CC's report and up to the point at which the final remedy is put in place. During this period the CC can accept undertakings from the parties that they will not take any action that might prejudice the eventual introduction of the final remedy following the CC's report. The Secretary of State may exercise this power in cases where there is a public interest notice in force.

344.     Section 89 FTA 1973 allowed an interim order (see below) to be made during this period. No express provision was made for accepting interim undertakings. In practice, the authorities could seek and accept undertakings but these had no statutory basis. This provision makes such undertakings legally-binding.

Clause 150: Interim orders: Part 4

345.     This clause also applies from publication of the CC's report to the point at which the final remedy is put in place. During this period, the CC can by order prevent the parties affected by a market investigation from taking any action that might prejudice the eventual introduction of the final remedy. This provision is based on section 89 FTA 1973. The Secretary of State may exercise this power in cases where a public interest notice is in force.

Clause 151: Final undertakings: Part 4

346.     This clause allows the CC to accept final undertakings from the parties to remedy competition problems identified in its final report on a market. This is based on the provisions on undertakings in section 88 FTA 1973. The Secretary of State may exercise this power in cases where there is a public interest notice in force.

Clause 152: Order-making power where final undertakings not fulfilled: Part 4

347.     This clause allows the CC to replace final undertakings with an order where the parties are not complying with the undertakings. Any order made under this clause is limited to the remedies set out in Schedule 7. (See note on Schedule 7 under Part 3 for more detail.) The Secretary of State may exercise this power in cases raising a public interest consideration.

Clause 153: Final orders: Part 4

348.     This clause allows the CC to make an order to remedy competition problems identified in its final report on a market investigation. This final order may contain any of the remedies permitted by Schedule 7 or any closely-related remedy. The Secretary of State may exercise this power in cases where there is a public interest notice in force.

 
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Prepared: 26 March 2002