HL Deb 25 July 1990 vol 521 cc1539-43

7.27 p.m.

Lord Strathclyde rose to move, That the draft regulations laid before the House on 5th July be approved [23rd Report from the Joint Committee].

The noble Lord said: My Lords, these regulations make technical changes only to the competition legislation of the United Kingdom, consequential upon the adoption last year of a European Community merger regulation. They do not reflect any change in the Government's mergers policy.

Under the regulation adopted by the Council of the European Communities last December, mergers with a Community dimension—those with a combined world-wide turnover of more than 5 billion ecu (around £3.7 billion) and where at least two of the undertakings concerned have a Community turnover in excess of 250 million ecu (around £185 million)—will be subject to examination by the European Commission. Mergers which primarily concern one member state, in that more than two-thirds of the turnover of each company concerned is in the same member state, remain subject to national controls.

However, it is possible that from time to time a merger thought initially to fall within the Commission's jurisdiction is later—possibly some months later and after examination by the European Court—found not to be one for the Commission but for the Secretary of State for Trade and Industry to deal with under United Kingdom law. Under UK law, the Secretary of State's ability to act is lost when certain time periods have elapsed; hence the need for these technical amendments merely to restore the status quo. I beg to move.

Moved, That the draft regulations laid before the House on 5th July be approved (23rd Report from the Joint Committee).—(Lord Strathclyde.)

Lord Bruce of Donington

My Lords, we are obliged to the noble Lord for having brought forward these regulations. As he said, the new regulations are designed to give effect to Council Regulation No. 4064/89 of 21st December 1989. In examining the regulations that are now before us, we in the Opposition have carefully examined the Council regulation. It would appear that the two are somewhat in conflict.

I should like to refer the noble Lord to Article 4 of the regulation referred to. It is in the Official Journal of the European Communities, No. L 395/1. It states: Concentrations with a Community dimension as referred to by this Regulation shall —and I underline the word "shall"— be notified to the Commission not more than one week after the conclusion of the agreement, or the announcement of the public bid, or the acquisition of a controlling interest. That week shall begin when the first of those events occurs". This regulation which, under Section 2(1) of the European Communities Act 1970, automatically becomes part of British law, would seem to be in conflict with the provisions of the Companies Act 1989. I refer in particular to Sections 75A and 75B which amend the Fair Trading Act covering these points. So far in this country all notification in regard to mergers has been on the basis of a code of practice. The operative words in Sections 75A and 75B are in support of that. They are a voluntary code.

I refer to Section 75A which is headed: General rule where notice given by acquirer and no reference made within period for considering notice". Subsection (1) states: Notice may be given to the Director by a person authorised by regulations". The regulation of the Commission states "shall". Which is to prevail? Paragraph 2 of the regulation amends Section 75B of the Fair Trading Act 1973. A new paragraph (d) is added which states: [if] it appears to him that the notified arrangements are, or if carried into effect would result in, a concentration with a Community dimension within the meaning of Council Regulation (EEC) No. 4064/89 of 21st December 1989 on the control of concentrations between undertakings". Subsection (7) once again becomes governed by the words: The Director may, at any time before the period for considering any merger notice expires, reject the notice if", and then there are paragraphs (a), (b), (c) and the new (d).

On the one hand, the Council regulation says "shall" but we are apparently still saying "may". Which is right? Which is to prevail? I am sure that it is a matter which the noble Lord's department will have considered.

I immediately concede, having had only a very limited time to study both the Council regulation and the appropriate sections of the Fair Trading Act, that my conception may be entirely wrong. If that is the case, I shall be obliged to the noble Lord for having corrected me because I always like to have matters of detail absolutely correct.

Am I right or wrong? If I am wrong, I shall accept the noble Lord's rebuke for having wasted his time in drawing his attention to it. If I am right, I should like to know how he proposes to bring English law into conformity with Community law bearing in mind that the Fair Trading Act cannot of itself be amended by regulation. It would need the Government to bring forward a new Act to amend the Fair Trading Act and in particular Sections 75A and 75B. I am very hopeful that that may not be necessary and that the noble Lord may be able to elucidate the problem that I regret to have laid before him. However, it is a matter upon which the House should be informed and which ought to be cleared up.

Lord Strathclyde

My Lords, I am sure that the whole House joins me in congratulating the noble Lord, Lord Bruce of Donington, on the assiduous way in which he has tackled this subject, and quite obviously the enormous amount of work that he has put into trying to work it out.

I can see where the confusion lies. I too find comparing these regulations with various pieces of legislation at UK or Community level extremely complicated. However, I hope that I can allay the fears of the noble Lord. Perhaps I may also say how grateful I am that he raised this issue with me a few moments before we came into the Chamber. I have therefore been able to do a certain amount of investigation.

The Community system requires notification of mergers falling within the regulation. Under our system the Secretary of State may refer a merger for investigation by the MMC. That instrument ensures that the Secretary of State retains his discretionary power to make a reference in the event that a merger notified to the EC proves to be within the UK's jurisdiction. That could take some time to resolve and the UK system involves time limits which may meanwhile have expired. The UK's voluntary notification system is based upon our belief that the market should be free to operate. A mandatory system for the much larger number of cases covered by our legislation would be considerably more burdensome for companies and consume greater public resources. We therefore prefer to intervene only when it is essential to protect the public interest.

Article 4 requires notification. It is a mandatory requirement. Sections 75A and 75B are voluntary. We therefore do not feel that there is any conflict because the Community regulation establishes exclusive jurisdiction above a certain threshold. Cases which come below the threshold—which will include cases which have therefore slipped through the net which this regulation picks up—remain within the United Kingdom's jurisdiction. Therefore we are free to deal with those on our own voluntary or mandatory basis—and we of course choose the former.

I hope that that that has allayed the noble Lord's fears. I can understand from where his concerns arise. However, I hope that that explanation will suffice.

Lord Bruce of Donington

I am grateful to the noble Lord. However, he does not quite satisfy me. The existing Sections 75A and 75B cover not only the small mergers and concentrations that escape the Commission net, as the noble Lord says, but also those which are within the Commission net. I agree that the numbers will, we hope, be comparatively small. We are becoming a little sick of mammoth mergers which do not add to the country's products in the slightest. But even on the assumption that there are a few which come within the Commission net, and therefore there is the mandatory element, as the noble Lord says, those same larger mergers within the Community net still remain within the voluntary net which is created by Sections 75A and 75B.

Therefore, to be logical, the Act should be amended to conform with the Community regulations in respect of those companies and directors who fall within the Community net; otherwise there will still be the conflict of laws. I do not know whether the noble Lord has given thought to that aspect. I believe that the essence of what I said in my introductory remarks still holds good.

It is common knowledge that I am not in favour of the Commission taking away powers from the United Kingdom Parliament, other than the barest possible necessities. However, once again it is a question of having everything legally correct. One may dissent from the principle but at least what is done should be legally intelligible and capable of proper legal application. On reflection, does not the Minister believe that the directors of companies which fall within the Commission net should be covered by a corresponding provision introduced by an appropriate amendment to Sections 75A and 75B?

Lord Strathclyde

My Lords, the noble Lord, Lord Bruce, made a telling statement when discussing the role of the European Community. It was slightly at odds with that of his Front Bench and the rest of the leadership of the Labour Party. As we all know, it has wholeheartedly taken on board the Commission's proposals as regards almost every single issue. I welcome the noble Lord's comments. They provided tremendous enlightenment and I hope that he will stick to them in the months and years to come.

I turn to the more substantive points that he raised. I forgot to reply to the remarks that he made in opening about the possibility of amending the Companies Act 1989. The prenotification procedures in Section 75B can be amended by secondary legislation. As regards European Community mergers policy, mergers falling within Community limits automatically fall within the Commission's jurisdiction and therefore Community law prevails. The obligation in the Community regulations is simply notification to the Commission. The overlap between our prenotification cases and the Community cases would be small. Copies of Community notification are sent under Council Regulation (EEC) No. 4064/89 to the UK authorities.

I have looked at the problem raised by the noble Lord. However, I believe that there is no problem because in the instances where Community jurisdiction clearly applies Community law will apply. Here we are merely dealing with cases which were first thought to apply to Community law but which then trickled down to UK law. As a result of the time-limit, we are merely extending the provision so that it might apply in the normal way under United Kingdom law. I hope that as a result of that explanation the noble Lord, Lord Bruce, will agree to approve the regulations.

Lord Bruce of Donington

My Lords, I am obliged to the Minister for that reply. It still does not completely clarify the legal situation. As ignorance of the law is no excuse in the United Kingdom, in order to comply with the law it will now be necessary for a library of Commission regulations to be kept in case, for some unspecified reason, British law does not comply with Community law which is alleged to affect it. Complications may arise.

I willingly concede that I may be in error because I have had only a matter of hours to study the regulations. However, the Minister's department has been studying them for a month or more. They will have been regurgitated over a number of expert committees possessed of far better professional qualifications than I have. Perhaps I am wrong but I remain uneasy.

As regards the Minister's more political point about my attitude towards the European Community, I am a British citizen first and a Member of the British Houses of Parliament. It has always been my objective here to ensure that the interests of my country are fully protected in all eventualities within the bounds of the treaties that it has signed and the undertakings that it has given. That remains my position and in no way am I at odds with my party on this issue.

On Question, Motion agreed to.