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Clause 16: Damages
64. This clause inserts a new section 47A in CA 1998 that will enable claims for damages to be brought in the CAT (the CAT will also exercise the appeals jurisdiction currently exercised by the appeal tribunals of the CC, and the new review jurisdiction under Parts 3 and 4 of the Bill). However, it will be possible to bring such claims in the Tribunal only where it has been established (by either the OFT or the European Commission) that an infringement of competition law has occurred. The right to bring such a claim will be without prejudice to the existing right to bring damages claims in the courts.
65. The new section 47A(1) specifies the infringements of competition law in respect of which a claim for damages may be made to the Tribunal. These are: breaches of the prohibitions in Chapter I and Chapter II of CA 1998, and breaches of the prohibitions in Article 81 and Article 82 of the EC Treaty. Those prohibitions concern agreements, decisions and concerted practices that have the object or effect of preventing, restricting or distorting competition (Chapter I and Article 81), and conduct that amounts to the abuse of a dominant position (Chapter II and Article 82). Also included are existing decisions taken under the corresponding provisions of the European Coal and Steel Treaty, which expires on 23 July 2002.
66. The new section 47A(2), (4) and (5) further limits the claims that may be heard by the Tribunal. A claim may be brought only if it arises out of an infringement that has already been established by a decision of the OFT, of the Tribunal itself on appeal from the OFT, or the European Commission. Decisions are excluded that may still be subject to appeal (for instance an appeal to the Tribunal itself in the case of decisions of the OFT, to the Court of Appeal in the case of Tribunal decisions on such an appeal, or an application to the European Court of Justice in the case of decisions of the European Commission).
67. The new section 47A(3) explains the basis on which the Tribunal will assess claims for damages. The Tribunal will assess such claims in the same way as a court, applying the relevant principles of tort or (in Scotland) delict.
Clause 17: Claims on behalf of consumers
68. This clause inserts a new section 47B in CA 1998 that enables a claim for damages under section 47A to be brought in a representative capacity by a specified body on behalf of a group of named individual consumers.
69. The new section 47B(1) and (2) provides that such a claim may be made on behalf of any group of two or more consumers, provided that each consumer has given his or her consent, and that they have claims in respect of the same infringement. Such a claim may only be made by a body that is specified by the Secretary of State under section 47B(8), and on behalf of persons who are claiming as consumers within the meaning given by sections 47B(5)-(7). In particular, the infringement that is relied upon must affect goods or services that were received (or sought to be received) by the claimant otherwise than in the course of his or her business.
70. The new section 47B(3) permits, under the same conditions, existing claims to be taken over by such a specified body.
71. The new section 47B(4) provides for damages to be awarded directly to the represented consumers, who will then be able to enforce the award in accordance with paragraphs 2 to 6 of Schedule 3.
72. The new section 47B(5)-(7) sets out the conditions that must apply before an individual can be said to claim as a 'consumer', and hence participate in a representative action. The infringement must have affected goods or services that the individual has received (or sought to receive) otherwise than in the course of business (although this will not exclude those received for the purposes of a future business). Conversely, the goods or services must have been supplied (or, had they been obtainable, would have been supplied) by a person acting in the course of business. A typical example will be where a consumer has bought goods for his or her own use, whose price has been inflated by a price-fixing agreement either among the suppliers themselves, or the manufacturers, or possibly among the manufacturers' own suppliers.
73. The new section 47B(8) gives the Secretary of State the power to specify by order, and in accordance with published criteria, the bodies that are permitted to bring a representative claim.
74. The new section 47B(9) provides that a body wishing to be specified for the purposes of this section must make an application in a form approved by the Secretary of State.
75. The new section 47B(10) provides for orders under this section to be made by statutory instrument subject to negative Parliamentary procedure.
Other amendments of the 1998 Act
Clause 18: Findings of infringements
76. This clause inserts a new section 58A in CA 1998. The new section provides that certain decisions of the OFT or the CAT regarding an infringement of competition law are to bind the courts for the purpose of a subsequent claim for damages.
77. The new section 58A(1) specifies the infringements that are covered. These are: breaches of the prohibitions in Chapter I and Chapter II of CA 1998, and breaches of the prohibitions in Article 81 and Article 82 of the EC Treaty.
78. The new section 58A(2) specifies the decisions that are binding under this section. No mention is made of those decisions of the European Commission (and other similar decisions) that are binding in any event by virtue of EC law. The new section 58A(3) excludes decisions that may still be subject to appeal (for instance appeal to the CAT itself, in the case of decisions of the OFT, or to the Court of Appeal in the case of CAT decisions on such an appeal).
79. Subsection (2) of this clause amends the definition of 'court' in Part I of CA 1998 to ensure that the new section 58A is not limited to the High Court and the Court of Session.
Clause 19 & Schedule 4: Proceedings under Part 1 of the 1998 Act
80. Schedule 4 makes a number of consequential amendments to CA 1998. It amends Schedule 7 to CA 1998 to remove references to the appeal tribunal. It also amends Schedule 8 to CA 1998 and section 49 CA 1998.
PART 3: MERGERS
Summary and Background
81. Part 3 of the Bill makes reforms to the UK's regime for the control of mergers. It will replace the merger control provisions of FTA 1973, other than the special arrangements for the control of newspaper mergers, which will remain. Policy for merger reform has been developed through a programme of consultation that started in 1999. 'Mergers: A Consultation Document on Proposals for Reform' (www2.dti.gov.uk/cp/mergercon/) was published in August 1999. 'Mergers: The Response to the Consultation on Proposals for Reform' (www2.dti.gov.uk/cp/mergerresp/) was published in October 2000. The main proposals, together with some further refinements, were included in the 'Productivity and Enterprise: A World Class Competition Regime' White Paper published in July 2001.
82. The main provisions of this Part of the Bill provide for:
83. The path of a merger investigation under the new system is summarised at Annex A.
Chapter 1: Duty to make references
Duty to make references: completed mergers
Clause 20: Duty to make references in relation to completed mergers
84. This clause provides that the OFT must refer a completed merger to the CC for further investigation if certain circumstances arise. This differs from FTA 1973's arrangements for reference, where the Secretary of State has discretion to refer merger cases.
85. Subsection (1) provides that the OFT must make a reference to the CC if it believes there is or may be a 'relevant merger situation' that has or may be expected to result in a substantial lessening of competition. However, subsection (2) provides that the OFT can choose not to refer if it thinks either that the market involved is not of sufficient importance to justify a CC investigation, or that any substantial lessening of competition would be outweighed by benefits to customers.
86. The OFT will be required under clause 102 to publish advice and information on how these provisions will operate, and how it will apply the substantive tests. The substantial lessening of competition test, and the customer benefits concept are explained in more detail in the notes on clauses 33 and 28 respectively.
87. The discretion for the OFT to decide not to refer a merger because the market is of insufficient importance is designed primarily to avoid references being made where the costs involved would be disproportionate to the size of the markets concerned.
88. Subsection (3) provides that the OFT is prevented from making a reference in each of the following circumstances:
89. Subsection (6) provides that the definition of UK markets includes both sub-national and supra-national markets.
Clause 21: Relevant merger situations
90. This clause sets out the criteria for a merger to qualify for investigation by the competition authorities, thereby making it a 'relevant merger situation'. It in substantial part reproduces sections 64 and 68 FTA 1973.
91. It provides that a 'relevant merger situation' is created if at least one of two thresholds is met. They are:
92. The remainder of the clause makes further provision as to the share of supply test. Subsections (3) and (4) provide that at least 25% of goods or services must be supplied in the UK - or a substantial part of it - by or to the same person or persons. Subsection (5) provides a list of what the competition authorities might consider in deciding whether the 25% share of supply is met, and subsection (6) allows the authorities to consider whether goods or services taken on their own; with others or in groups, make up this proportion. Subsections (7) and (8) give the competition authorities the discretion to decide when goods or services are the subject of different forms of supply. Subsection (9) provides that, in circumstances where the CC has changed the reference from an anticipated to a completed merger by virtue of clause 35(2), a relevant merger situation has been made in the new circumstances when the CC determine it necessary; or, in any other circumstance, just before reference.
Clause 22: Time-limits and prior notice
93. This clause provides for the time period in which mergers may be treated as a 'relevant merger situation' and are therefore referable. These re-enact those applying under FTA 1973.
94. A reference to the CC must be made within four months of the completion of a merger, or (if later) material facts about the merger being made public or given to OFT.
95. For this purpose, the clause defines the term 'made public' as having the meaning of 'generally known or readily ascertainable'. The intention is that OFT would reasonably be expected to have known or found out about the merger if it has not been notified about it.
Clause 23: Extension of time-limits
96. This clause allows for the extension of the four-month period in which a merger can be referred in certain circumstances: where the OFT and parties have agreed an extension; where parties have failed to provide information to the OFT as requested; where undertakings are being sought; or where the UK has made a request to the EC under article 22(3) of the ECMR.
Clause 24: Enterprises ceasing to be distinct enterprises
97. This clause defines a merger situation. It is closely modelled on section 65 FTA 1973, with one omission to take account of the existence of CA 1998.
98. The provision in 65(1)(b) of FTA 1973 that referred to 'arrangements entered into in order to prevent competition between enterprises' has been omitted. Where such arrangements do not fall within the new merger regime, it is considered they will be better suited to investigation under CA 1998.
99. Subsection (1) defines 'two enterprises ceasing to be distinct' because they are 'brought under common ownership or control'. This definition excludes most agreements between companies, unless they establish a new company. The definition is deliberately broad. There is a further filter, in the form of two alternative tests (see clause 21) that define those mergers that qualify for investigation.
100. An 'enterprise' is defined in clause 121 as the activities, or part of the activities, of a business. A 'business' includes a professional practice and includes any other undertaking that is carried on for gain or reward or that is an undertaking in the course of which goods or services are supplied other than free of charge. The definition includes 'part of the activities of a business' as it is sometimes an operating division of a company that is acquired rather than the whole of the company.
101. Subsections (3) and (4) (which are modelled on the equivalent FTA 1973 provisions) envisage three levels of control of an enterprise. These are: material influence over policy; control of policy (also known as de facto control); and a controlling interest in the enterprise (also known as de jure control).
102. Two enterprises cease to be distinct when there is an increase in the level of control - see clause 25 (3), (4)(a) and (4)(b). It is thus possible for a merger situation to be investigated at any of the three points where there is a change of control. It is also possible for all three changes to occur in a single transaction, from no interest to a controlling interest, so that multiple scrutiny can be avoided.
103. Material influence over policy (subsection (3)) is not precisely defined because it depends on a number of factors, such as the distribution of other shares, and the detail of the articles of association. However, the DGFT has in the past indicated that acquisition of 15% of the shares of a company will be likely to be investigated to see if it constitutes material influence. Likewise, the acquisition of a directorship may be considered to give influence over policy.
Clauses 25 and 27: Time when enterprises cease to be distinct & Obtaining control by stages
104. Clauses 25 and 27 reproduce sections 66 and 66A FTA 1973. These provide for the application of merger control to cases where ownership or control of an enterprise is obtained over a period of time. The key rule is contained in clause 25(2), namely that mergers are treated as having been completed at the moment when all the parties to a transaction are contractually bound to do so. It makes clear that no account is to be taken of options that have not been exercised or conditional rights where the conditions have not been satisfied.
105. Clause 25 deals with cases where ownership or control has been acquired incrementally over a period of time: in such cases, where this has been achieved through a series of transactions that result in enterprises ceasing to be distinct, the competition authorities can treat them as having all occurred on the date of the last transaction, subject to a two year cut-off period. The authorities do not need to decide which of many individual transactions resulted in a change of control, provided the overall effect is such as to constitute a change of control.
106. Clause 27 (Obtaining control by stages) allows for a series of transactions (as opposed to what could be deemed as one transaction, broken up over a period of time) to be referable as a relevant merger if the competition authorities consider that they amount to a merger situation. As for clause 25, the competition authorities can look at all transactions that occurred over the period of the last two years, and unexercised options or other conditional rights are not included.
Clause 26: Turnover test
107. This clause provides for how the turnover test, which will replace the current 'assets test' contained in sections 64 and 67 FTA 1973, is to be determined. The test will apply to UK turnover, and will be set initially at £45 million, but this figure will be alterable by statutory instrument.
108. The test will be determined by reference to the enterprise being taken over (i.e. if the turnover of the target company is or exceeds £45 million, the merger qualifies for investigation). If it is the case that no enterprise will continue under the same ownership after the merger (for example, formation of a new joint venture), the turnover of all the enterprises involved is to be added together and the highest taken away. The clause also provides that the OFT shall keep the figure under review, and from time to time advise the Secretary of State if it is still an appropriate level.
Clause 28: Relevant customer benefits
109. This clause defines the benefits to customers that the authorities can take into account. They must be in the form of lower prices, greater innovation, greater choice or higher quality in a UK market. Customer benefits may be relevant to decisions of the OFT and the CC in two main situations:
110. Relevant customer benefits are narrowly defined. They are not expected to arise very often. They must be in the form of lower prices, greater innovation, greater choice or higher quality in a UK market. This definition is related to the competition test because the benefits are ones that would normally be expected to arise in a fully competitive market.
111. The definition is further narrowed in the following ways:
112. Both the OFT and the CC will be required to produce information and advice respectively about the making and consideration of references. This will include information and advice about their application of the customer benefits concept. Examples of mergers that might - depending on the specific circumstances - generate customer benefits that could be taken into account by the OFT in deciding whether to make a reference, or by the CC in determining remedies, are as follows:
113. These examples are illustrative only, and should not be regarded as pre-judging what may or may not be included in the advice published by the competition authorities.
Clause 29: Information powers in relation to completed mergers
114. This clause sets out a new procedure for the OFT to obtain information from the parties of a possible completed merger. It allows the OFT to require information by notice, and provides that the notice must tell the parties what information is required, when it is required and what may happen if the parties do not comply with such a request (i.e. a reference to the CC).
Clause 30: Supplementary provision for purposes of sections 23 and 29
115. This clause provides the Secretary of State with a power to make regulations about the operation of the extension of the OFT's timetable for reference or the OFT's information-gathering powers in relation to completed mergers. The clause also sets out arrangements for notices extending the four-month period.
Duty to make references: anticipated mergers
Clause 31: Duty to make references in relation to anticipated mergers
116. This clause provides that the OFT must refer an anticipated merger (i.e. one that has not yet taken place) to the CC for further investigation in certain circumstances. It broadly mirrors the reference duty in clause 20. However, because there may be some uncertainty in these cases about whether a merger will go ahead, the OFT is given discretion not to refer unless it believes the proposals are sufficiently far advanced or likely to proceed. The OFT will cover this point in its published guidance.
Clause 32: Supplementary provision in relation to anticipated mergers
117. This clause provides for circumstances where a number of events or transactions have taken place and the last event, which would result in a relevant merger situation, has not yet occurred. In the case of clause 25, this future event would result in enterprises ceasing to be distinct; and, in the case of clause 27, the event is a transaction as stated in subsection (2) of that section. It allows the competition authorities to say that the planned event took place on a certain date (that of reference) in order to count back two years from that date and know which event was the first one to be counted.
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