On 31 July 2001, the UK Government published the White Paper Productivity and Enterprise – A World Class Competition Regime, followed by a press release in November which gave more details of the proposed changes. With time needed for drafting and possibly for further consultation, it is unlikely that the proposals will be in force before 2003.
The White Paper has five main goals:
Competition authorities reform
The basic structure of the UK competition authorities will remain the same, with some changes introduced to reinforce their independence from government. The Government has previously announced that it intends to transform the Office of Fair Trading (OFT) into an Authority with power vested in a board, rather than in the Director General of Fair Trading (DGFT). The DGFT has already appointed an informal advisory panel to provide additional external advice.
The proposed bill will give the OFT a clear legal duty to promote competition and will also allocate it a role in advising Government on the likely competition impact of future legislative proposals. Local authority trading standards officers may be used to detect local competition breaches. Sectoral regulators (eg Oftel) will continue to apply the competition rules concurrently with the OFT.
Only those with expertise relevant to competition will be appointed to the Competition Commission (CC) and only those with expertise relevant to competition or consumer affairs will be appointed to the new board of the OFT. Both the OFT and the CC will improve their staffing and are expected to become more transparent and publicly accountable, producing mission statements and annual reports.
Certain consumer groups will be given the right to make ‘super-complaints’ to the OFT where they suspect that market structures or practices operate against the consumer interest. Where there is reasonable evidence to support the complaint, the OFT will have 90 days in which to publish a response.
New merger control regime
The current two-tier system whereby the OFT assesses and clears mergers, or refers them on to the CC will remain, but the existing public interest test will be replaced by a test of whether a merger may lead to a substantial lessening of competition. The new rules will, however, allow the authorities in exceptional circumstances to clear mergers on the basis that they benefit UK consumers.
The final decision on most mergers will be made by the OFT or the CC instead of the Secretary of State. The Secretary of State will be able to decide on mergers that raise exceptional public interest (EPI) concerns, but national security will initially be the only EPI issue. Ministers will be able to introduce additional EPI criteria by statutory instrument, subject to backing by both Houses of Parliament.
The proposals will shorten the period in which the OFT carries out its preliminary review of a merger and, if a merger is referred, will impose a basic 24 week limit on the CC to complete its report
The proposals envisage that the OFT will be able to investigate a merger if the target company has UK turnover exceeding £45m (replacing the current assets test) or (as now) if the merger creates or enhances a 25% share of supply of particular goods or services in the UK or in a substantial part of it.
The CC will be given the power to fine parties and third parties for failure to provide information, or a delay in doing so.
The CC will have a new duty to publish interim findings before considering remedies. This should encourage constructive discussions with parties and third parties, a feature that has generally been regarded as lacking in the current procedures.
Reforming monopoly control
The current ‘complex monopoly’ provisions will be replaced by a new power to investigate markets. The OFT will be able to refer any market to the CC for investigation, along lines similar to merger inquiries. A timetable will be set for such investigations, and the CC will have powers to impose sanctions for failure to provide information on time.
The White Paper asks for views on two possible tests for determining whether to refer a market for investigation by the CC - whether the OFT believes or has a reasonable suspicion that a market may operate in a way that either adversely affects competition, or else substantially lessens competition.
As with the merger regime, the CC will consider remedies after publication and discussion of its interim findings.
Individual rights of action
The reforms will seek to encourage private actions by consumers harmed by a breach of the rules. The main changes suggested are as follows.
Criminal sanctions
The current penalty for breach of UK competition rules is a fine of up to 10% of a business’s UK turnover for each year of the infringement, subject to a maximum of three years. The White Paper sets out the Government’s plan to introduce individual criminal penalties for instances of hardcore cartel behaviour. The following powers are proposed.
It is also proposed that the OFT will have new powers to seek a court order or impose undertakings to disqualify company directors for serious breaches of competition law for a maximum of 15 years. It is not yet clear what would amount to a ‘serious’ breach, how it would differ from the main offence, or whether disqualification would be an alternative or additional sanction.
There is concern that the increased sanctions available to the OFT may make investigations harder to pursue. At present, the OFT encourages companies participating in cartels to blow the whistle on their fellow conspirators. A whistle-blowing company can receive full immunity from fines. The Government plans to introduce a leniency regime for the new offences that is in line with UK and EC civil leniency regimes. The details of this regime will be a key factor in the effectiveness of the new sanctions.
Paul Stone is a lawyer, Lovells, Tel: 020 7296 2000, E-mail: paul.stone@lovells.com
INCENTIVES FOR WHISTLE BLOWERS
The November issue of Fair Trading, the OFT’s quarterly publication, says that the first of several OFT cartel-busting cases will be made public in the next few months. The OFT’s leniency programme, with its immunity incentives, is encouraging whistle blowing among those actually involved in the cartels.
The first member of a cartel to come forward with relevant information is offered total immunity from financial penalty, provided that the information is given before an OFT investigation has started and provided that the OFT does not already have enough evidence about that particular cartel. There is discretionary immunity if the OFT has already started its investigation but has yet to give written notice of the specific infringements. Additionally, there can be a reduction of up to 50% on any penalties imposed if a business is not the first to come forward, but still does so before the OFT has given written notice about any infringements, or where a business would have qualified for total immunity had it not been the instigator or leader of the cartel, or compelled others to join.
In either case, a business wanting to take advantage of the leniency programme must:
If a business is already co-operating with a cartel investigation, but provides more information that enables it to be granted total immunity in relation to a second cartel, it could receive a further reduction in any penalty resulting from the first investigation.
The OFT understands that any business wanting to come forward may be worried about the reaction of the other cartel members. The OFT will try, whenever possible, to keep confidential the identity of anyone who comes forward.
EUROPEAN REGULATION
On 8 October 2001, the Council of Social and Employment Affairs adopted a regulation on the statute for a European Company and a directive complementing the statute with regard to the involvement of employees in the European company.
A European Company Statute (ECS) has been under discussion since 1970, according to Lovells newsletter November/December 2001 on EU and Competition. The idea was to devise a corporate vehicle for co-operation between enterprises from different member states, with the aim of breaking down national barriers inhibiting the development of the single market.
Lovells says that the adoption of the ECS should in practice mean that companies established in more than one member state will be able to merge and operate throughout the EU on the basis of a single set of rules and a unified management and supervision system. A European company will be governed by the provisions set out in the regulation in relation to such matters as share capital and internal regulations. However, a large number of matters, such as taxation, accounting and insolvency, are left to national law.
The regulation establishes that a European company cannot be registered unless it complies with the requirements and procedures set out in the directive on worker involvement. Under this directive, the creation of a European company will require negotiations on the involvement of employees with a body representing all employees of the companies concerned. If it proves impossible to negotiate a mutually satisfactory arrangement, then a set of standard principles, laid down in an annexe to the directive, will apply.
USEFUL PUBLICATIONS
Information about the UK 1998 Competition Act is held on the home page of the OFT’s website (www.oft.gov.uk). The OFT also produces a number of useful publications about the Competition Act and the leniency programme. Information leaflets include:
There are also some helpful guidelines including:
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