House of Commons - Explanatory Note
Enterprise Bill - continued          House of Commons

back to previous text

Enforcement functions of OFT

Clause 154: Duty of OFT to monitor undertakings and orders: Part 4

349.     This clause gives the OFT the lead role in monitoring undertakings and orders. OFT will keep all undertakings and orders under review. Where it decides that an order or undertaking should be amended or revoked, it will advise the CC or Secretary of State accordingly. Where an order or undertaking is not being complied with, OFT will be able to take the company to court. This is based on the monitoring role given to the DGFT by section 88 FTA 1973.

Clause 155: Further role of OFT in relation to undertakings and orders: Part 4

350.     This clause allows the CC (or the Secretary of State) to ask the OFT to negotiate final undertakings on its behalf following a market investigation. The CC retains the final say on whether undertakings should be accepted. The CC may also choose to negotiate directly with the parties.


Clause 156: Enforcement undertakings and orders under this Part: general provisions

351.     This clause applies certain provisions from the mergers regime (Part 3) in the context of market investigations. It also specifies the minimum contents of any order.

352.     Clause 82 makes certain general provisions applicable to all orders.

353.     Clause 83 allows the person making an order to give directions to an individual or to an office-holder in any company or association.

Clause 157: Procedural requirements for certain undertakings and orders: Part 4

354.     This clause brings into effect procedural requirements for making, varying or revoking orders and undertakings set out in Schedule 9.

355.     These procedural requirements apply to final orders and undertakings. Interim orders do not have to comply with these procedural requirements because they may need to be introduced at short notice. Paragraph 14 of the Schedule has been excluded to ensure that undertakings and orders are published in draft in every case. This allows the Secretary of State to monitor the development of final remedies in cases that have raised an exceptional public interest consideration.

Clause 158: Register of undertakings and orders: Part 4

356.     This clause creates a register to be maintained by the OFT of all orders and undertakings made or accepted by the OFT, sectoral regulators, CC or Secretary of State. This register will be available to the public. The sectoral regulators are not required to compile and maintain a register.

Clause 159: Rights to enforce undertakings and orders under this Part

357.     This clause ensures that orders and undertakings can be enforced through the courts. It makes comparable provisions to clause 90 in Part 3.

Chapter 4: Supplementary

Regulated markets

Clause 160: Regulated markets

358.     In economically-regulated markets, regulators have a set of objectives that go beyond preventing adverse effects on competition and correspond to the regulators' statutory duties. In order to achieve these objectives, the regulator may set out certain terms and conditions with which firms must comply in order to operate in them. These terms and conditions are variously expressed in licence conditions, franchise agreements, access agreements or conditions of appointment under which firms operate in a market. Whilst the economic regulators have a duty to promote competition, they have other duties that go further than competition (e.g. The Postal Services Commission (POSTCOMM) has a duty to ensure a universal postal service). These duties may have higher priority than the duty to promote competition. Therefore, when the CC propose remedies that involve changes to licence conditions, rail franchise agreements or access agreements or conditions of appointment in the water sector (i.e. 'relevant action'), the CC should have regard to the regulators' duties. Consideration of regulators' duties will replace consideration of the normal set of consumer benefits (price, quality, innovation, choice).

359.     The scheme for remedying a competition problem in a regulated market is outlined in Annex B.

Consultation, information and publicity

Clause 161: Certain duties of relevant authorities to consult: Part 4

360.     This clause is provided to ensure that as far as is practicable the relevant authorities, which are the CC, OFT and the appropriate Minister, consult with, and where practicable give reasons to, any person who would be substantially impacted by a decision that the relevant authority is about to make. An example of such a decision would be the OFT's decision to make a market reference. This will ensure that the affected party is made aware of the authorities' proposed decision and has the opportunity to make representations to the authority about this proposed decision before it is taken.

361.     Subsection (4) lists some of the things that the relevant authority should consider when it decides whether it is practicable to consult the party about its proposed decision and give reasons for this proposed decision. These include any restrictions that are imposed on the party for taking action within a specific timetable, and the need to keep either the decision or the reasons for this decision confidential.

362.     Subsection (5) ensures that this duty to consult does not apply if there is another specific duty elsewhere in the Part. For example, this duty would not apply when making an interim order (see clause 150).

Clause 162: General information duties

363.     The purpose of this clause is:

  • to ensure that a relevant competition authority is able to obtain information that it needs for the purpose of a market investigation that is in the possession of the OFT or the CC; and

  • to ensure that the CC or Secretary of State or appropriate Minister may request any assistance they need, for the purpose of a market investigation, from the OFT.

Clause 163: Advice and information: Part 4

364.     This clause ensures the publication of general guidance on the main aspects of the new markets regime. The purpose of the guidance is to explain the relevant provisions and indicate how either the OFT or the CC expects these provisions to work. It is intended that guidance will increase clarity for business about how the new regime works. This clause only confers duties on the OFT and CC and not the sectoral regulators.

365.     The OFT is given a duty to prepare and publish guidance on how it will make market investigation references. This guidance can be updated or re-published at any time. The OFT is required to consult the CC and others whom it considers appropriate, for example the sectoral regulators, when publishing this guidance.

366.     The CC is given a duty to prepare and publish guidance on how it will consider market investigation references. This shall include guidance on how the CC will consider consumer benefits. Like the OFT's guidance, this guidance can be updated or re-published at any time, and the CC are required to consult the OFT and others whom it considers appropriate when publishing this guidance.

Clause 164: Further publicity requirements: Part 4

367.     It is the intention of this clause to increase the transparency with which the markets investigation regime operates. Listed in subsections (1) to (4) are decisions that the OFT, the CC, the Secretary of State or an appropriate Minister will be required to publish. The relevant authorities are also required to publish reasons for their decisions, although these reasons do not have to be published at the same time as the decision if this is not reasonably practicable. Publication can be in any manner and form that the relevant authority considers appropriate in order to bring the matter to the attention of those it is likely to affect.

368.     There are certain decisions listed in subsections (1) to (4) that require publishing but do not require reasoning. An example of such a decision is a decision by the OFT or the CC to inform the Secretary of State about a case raising a public interest consideration (see clause 144(1)).

369.     Subsection (8) requires that the Secretary of State publish her reasons for deciding to add to, vary, or revoke the list of public interest considerations that allow the Secretary of State to take decisions in a case rather than the CC, although these reasons do not have to be published at the same time as the decision.

370.     In a case that raises a public interest consideration, where the Secretary of State has decided to accept either undertakings or an order, or has decided to do neither of these things, the Secretary of State should lay details of the decision, the reasons for the decision and a copy of the CC's report, before each House of Parliament.

Clause 165: Defamation: Part 4

371.     This clause protects the Secretary of State, OFT and the CC against actions for defamation as a result of their exercise of functions under the market investigation provisions of the Bill.

Investigation powers

Clause 166: Investigation powers of OFT

372.     This clause provides that the OFT should have investigative powers while it is considering whether to make a market investigation reference. In comparison with the powers available to the OFT under section 44 FTA 1973, these new powers have been brought into line with those of the CC for market investigations.

Clause 167: Enforcement of powers under section 166: offences

373.     This clause sets out the enforcement powers that the OFT will have in relation to their general investigative powers under clause 166. It provides that a person commits an offence where he or she intentionally fails to comply with a notice or he or she intentionally alters, suppresses or destroys documents that he or she has been required to produce. The punishment for either of these offences may be a fine and/or imprisonment. The clause also sets out that it is an offence for a person to intentionally obstruct or delay the OFT or any person in carrying out their investigative functions - this offence is punishable by fine only.

Clause 168: Investigation powers of the Commission

374.     The investigation powers for the markets regime are described in more detail in the explanatory notes on the merger regime (see notes on merger clauses 105-113). These clauses set out the powers the CC will have to require persons to give evidence, and to provide specified documents and information needed for the purposes of a markets inquiry. There are close similarities with the investigatory powers that it currently has under section 85 FTA 1973, but with one significant change. The CC's current power to initiate contempt proceedings against persons who fail to comply with notices requiring the production of documents and information, and the attendance of witnesses, will be replaced with a power for the CC to impose monetary penalties for non-compliance.


Clause 169: Review of decisions under Part 4

375.     This clause provides comparable provision in relation to the review of decisions taken by public authorities under the market investigation provisions to that provided by clause 114 in relation to decisions under the merger provisions.

Clause 170: Offences

376.     This clause provides that the mergers clauses that deal with false or misleading information and offences by bodies corporate also apply to the markets regime. In the markets regime, where there are references in clause 113 (false or misleading information) to the Secretary of State, these also include references to the appropriate Minister as far as he or she is not the Secretary of State acting alone.

Clause 172: Service of documents: Part 4

377.     This clause makes the same provision for the service of documents in relation to market investigation references as clause 118 does in relation to merger references.


The Competition Service

Clause 175: The Competition Service

378.     This clause establishes a new body called the Competition Service that will provide support services to the CC and the CAT. The Service will employ the staff formerly employed by the Commission, and take on its assets and liabilities. Its purpose is to provide impartial and professional support to both CC inquiry panels and the CAT. Previously both inquiry panels and appeals tribunals were supported by the staff of the CC. This arrangement was no longer considered appropriate because the CAT will now hear appeals against decisions made by the CC.

Schedule 10: The Competition Service

379.     This Schedule establishes the Competition Service. The Service will be led by a Board consisting of the President of the CAT, the Chairman of the CC, a chief executive and two non-executive directors. Part 2 of the Schedule sets out the arrangements for transferring property, rights and liabilities from the CC to the Service.

Clause 176: Annual report of Service

380.     This clause requires the Competition Service to produce an annual report at the end of each financial year covering its activities.

The Competition Commission

Clause 177: The Competition Commission

381.     This clause gives effect to Schedule 11, which amends the constitution and powers of the CC.

Schedule 11: The Competition Commission

382.     This Schedule makes various amendments to the constitution and powers of the CC. It amends Schedule 7 of CA98, which sets out the existing constitutional arrangements. These changes are being made because the CC will not in future have a management role, nor employ its own staff, pay its own members nor maintain its own accounts. These functions are to be carried out by the Competition Service. The Schedule also updates the arrangements for appointing newspaper panel members. It also lists the effect on certain types of decision where the decision is not that of at least two-thirds of the members of the group.

Clause 178 & Schedule 12: Commission rules of procedure

383.     This clause gives the CC Chairman a new duty to make and publish rules of procedure to regulate the conduct of CC investigations under Parts 3 and 4 and the other enactments listed in paragraph 19(a)(9) of Schedule 7 to CA 1998 (as inserted by subsection (3)). Provision is made for the Chairman to consult with members of the CC and such other persons as he or she considers appropriate before making such rules (subsection (4)). The Chairman retains the existing FTA 1973 power to issue guidance to reporting groups on the conduct of references (subsection (6)). This may be useful for areas of procedure where some flexibility and discretion for panels is desirable.

384.     Schedule 12 contains a non-exhaustive list of the matters that may be covered by the CC Chairman's rules of procedure.


Cartel Offence

385.     Clauses 179-193 provide for a criminal offence for individuals who dishonestly engage in cartel agreements ('the criminal offence'). The criminal offence will operate alongside the existing regime that imposes civil sanctions on undertakings that breach the competition provisions of CA 1998. The civil regime applies to a much wider range of anti-competitive activities than are targeted by the criminal offence.

386.     The proposal to introduce criminal sanctions as a deterrent to individuals engaging in cartel activity was included in the July 2001 White Paper, 'Productivity and Enterprise: A World Class Competition Regime', and views were invited from consultees on the general concept and on a number of detailed aspects of the proposal.

387.     In the light of responses to the consultation and of contacts with the authorities likely to be responsible for the new offence, the Government announced in November 2001 further details of its proposals for the introduction of the criminal offence, as follows:

  • the definition of the offence to be based on individuals having dishonestly entered into horizontal agreements (i.e. agreements at the same level in the supply chain) to fix prices, share markets, limit production or rig bids;

  • the investigation to be carried out by OFT investigators under a case controller from the Serious Fraud Office ('SFO'); appropriate investigatory powers to be made available to the OFT;

  • the OFT to be able to issue 'no-action letters' to protect informants from prosecution;

  • for investigations that lead to prosecution, the SFO to be the lead prosecutor; the OFT also to be a named prosecutor;

  • the offence to be triable in either the Magistrates' Courts or the Crown Courts; the maximum penalty for the offence to be five years' imprisonment; fines to be available in addition or as an alternative.

388.     Clauses 179-193 make the necessary legislative provisions to implement the criminal offence.

Clause 179: Cartel offence

389.     Subsections (1) to (6) define the offence. They provide that individuals will be liable to criminal prosecution if they dishonestly agree with one or more other persons that two or more undertakings will engage in one or more of the prohibited cartel activities. The offence only applies in respect of horizontal agreements (i.e. agreements relating to products or services at the same level in the supply chain). The offence is committed irrespective of whether or not the agreement reached between the individuals is implemented by the undertakings, and irrespective of whether or not they have authority to act on behalf of the undertaking at the time of the agreement.

390.     The prohibited activities are: price-fixing; limitation of production; market-sharing; and bid-rigging. These activities comprise the most serious forms of anti-competitive activity and as such are a sub-set of the practices for which undertakings may be pursued under the civil provisions of CA 1998.

391.     Subsection (2) specifies the four categories of prohibited cartel activity: price-fixing, limitation of production or supply, the sharing of markets, and bid-rigging. Price-fixing is defined so as to include the direct or indirect fixing of prices. Examples of indirect price-fixing would be likely to include, but would not be restricted to, agreements about relative price levels or price ranges, rebates, discounts, price-change indices, transport charges or methods of quotation. Market-sharing is defined in terms of customers so as to include the sharing of an individual customer or customers.

392.     Subsection (3) requires, in the case of price-fixing or limitation of production or supply, that for the offence to be committed the other party must reciprocally have intended that the agreement, if implemented according to the intentions of the parties, should result in one of these activities. This means that agreements are not criminal where the agreement only requires one party to fix prices or limit production or supply as defined. This further requirement does not apply in the case of market-sharing and bid-rigging where the activities are by definition reciprocal.

393.     Subsections (5) and (6) provide a definition of the activities that constitute bid-rigging for the purposes of the criminal offence. Bid-rigging is the only one of the prohibited activities where for all practical purposes the carrying out of the activity described in this clause will in itself invariably indicate a dishonest intention and amount to the commission of the offence. Arrangements of which the person requesting bids is aware are not subject to the criminal offence.

Clause 180: Cartel offence: supplementary

394.     This clause relates to subsections 1(2)(a)-(d) and 1(3)(a)-(c) of clause 179. It provides that, for agreements involving price-fixing, limitation of production and market-sharing, undertakings must be operating at the same level in the chain of supply or production. The criminal offence does not apply to so-called vertical agreements, which relate to intended activity where the two or more parties are operating at different levels in the chain of supply or production (e.g. as producer and distributor or as distributor and retailer).

Clause 181: Cartel offence: penalty and prosecution

395.     Subsection (2) sets out that the OFT and SFO will be the only named prosecutors for the offence in England, Wales and Northern Ireland. A third party could only bring a prosecution with the OFT's consent. This is designed to enable the OFT to prevent vexatious private prosecutions against recipients of leniency (see below). The Lord Advocate will prosecute the criminal offence in Scotland; no legislative provision is required.

396.     The scope of the offence generally extends to agreements that are implemented or intended to be implemented in the UK. This means that in general agreements do not need to have been implemented for an offence to have been committed. Subsection (3) provides for the exception to this, which is that agreements reached overseas may only be prosecuted if some subsequent action is taken within the UK to further the agreement. An instruction to others to implement the agreement, delivered into the UK by telephone or electronic mail, might be a sufficient action for this purpose.

397.     Subsection (4) provides for the leniency process. It provides the OFT with the power to issue an applicant for leniency with a written notice that he or she will not be prosecuted for the particular matter under investigation provided certain contractual conditions set out in the notice are met. These conditions would be likely to include that the applicant: makes an admission of guilt; must not be the lead cartel member; must cease all involvement in the cartel (except as directed by the OFT to avoid arousing the suspicions of the other parties); must co-operate fully with the investigation; and must make a full disclosure. The notice is intended to encourage informants to come forward by providing them with sufficient comfort that they will not be prosecuted. In Scotland, the decision to prosecute rests with the Lord Advocate, who will take into account a report from the OFT.

Clause 182: Extradition

398.     This clause provides that the criminal offence, or a conspiracy or an attempt to commit it, shall be an extraditable offence to which Schedule 1 to the Extradition Act 1979 applies. That Schedule preserves the old extradition regime under the Extradition Act 1870. This will allow extradition in respect of the offence from countries with whom the UK signed bilateral extradition treaties before 1989 - this group includes the United States of America. Requests for extradition from other countries with which the UK has extradition arrangements (including members of the Council of Europe, Commonwealth countries and Hong Kong, and countries with whom the UK signed bilateral treaties since 1989) are made under the main provisions of the Extradition Act 1989. Extradition from these countries will apply in respect of the criminal offence without a specific legislative provision.

399.     The extradition provisions do not apply retrospectively. Dual-criminality applies (i.e. the country from which the suspect is to be extradited must also apply criminal sanctions to the activity of which he or she is suspected).

Criminal investigations by OFT

400.     Clauses 183-193 make provisions for appropriate powers of investigations in respect of the criminal offence. They provide the OFT with powers modelled broadly on those already available to the SFO under Section 2 of the Criminal Justice Act 1987 ('CJA87'). The OFT will investigate the criminal offence under the powers provided in these clauses, working closely with the SFO, who may draw on their CJA87 powers.

Clause 183: Investigation of offences under section 179

401.     This clause provides that the OFT is only to exercise the powers in clauses 184 and 185 in relation to the criminal offence. The OFT will continue to conduct investigations in relation to infringement of Chapter I civil prohibitions of CA 1998 by using investigatory powers set out in Part I, Chapter III of CA 1998. The OFT can only exercise the powers if there are reasonable grounds for suspecting an offence under clause 179.

Clause 184: Powers when conducting an investigation

402.     Subsection (1) provides powers for the OFT to require in writing the person under investigation, or any other person, to answer questions or provide information that the OFT considers relates to any matter relevant to the investigation.

403.     Subsection (2) provides that the OFT may require the production of documents that appear to the OFT to relate to the investigation. The documents required must be specified or described in a written notice or must fall within a category specified or described in the notice.

Clause 185: Power to enter premises under a warrant

404.     This clause makes provision for the OFT to make an application to a judge of the High Court or of the High Court of Justiciary in Scotland for a warrant authorising a named officer of the OFT to enter premises. The warrant may also cover any other person whom the OFT has authorised in writing to accompany the named officer. This clause parallels section 28 CA 1998, which requires the OFT to seek a warrant from the High Court or the Court of Session in order to investigate infringements of the civil prohibitions in Chapter I of CA 1998.

405.     Subsection (1) grants a judge of the High Court or High Court of Justiciary the power to issue a warrant if he or she is satisfied that there are reasonable grounds for believing there are documents on any premises that the OFT has the right to require under clause 184. The judge must be satisfied that one of the following circumstances applies before he or she may issue a warrant: (i) that a person has failed to comply with a requirement under clause 184 to produce documents; (ii) that it is not practicable to serve a notice under clause 184; or (iii) that the service of such a notice might seriously prejudice the investigation (i.e. there are reasonable grounds to believe that information might be destroyed or tampered with).

406.     Subsection (4) allows people who are not employees of the OFT to accompany and assist OFT officers who are exercising powers under this clause. It is anticipated that such people will have expertise that is not available within the OFT but is required to exploit fully the terms of the warrant (e.g. IT experts).

407.     Subsection (6) amends Part I of Schedule 1 of the Criminal Justice and Police Act 2001 ('CJPA 2001') to add to it the powers of seizure conferred by subsection (2). This will have the effect of incorporating the amendments to statutory powers of seizure introduced by section 50 CJPA 2001.

408.     These amendments enable an officer to seize material if it is not reasonably practicable to determine on the premises whether the material is seizeable or not, or, in the case of property some of which is seizeable, which items he or she would be entitled to seize. The exercise of the powers is subject to strict safeguards, which include a requirement to give written notice (section 52 CJPA 2001) and a duty to return legally privileged material (section 54).

409.     The OFT's existing civil powers of seizure under section 28(2) CA 1998 are already contained in Part I of Schedule 1 of the CJPA 2001.

previous Section contents continue
House of Commons home page Houses of Parliament home page House of Lords home page search Page enquiries index

© Parliamentary copyright 2002
Prepared: 26 March 2002