Robert Lindsay assesses lawyers' attitudes to Labour's draft Bill which proposes to give the OFT extended powers to regulate competition
Labour's draft Competition Bill, published two weeks ago, went virtually unnoticed by the media. But it will make John Bridgeman, the director general of the Office of Fair Trading (OFT), one of the most powerful non-elected administrative officials in the UK and it is sure to create a huge demand for competition lawyers.
Although some businesses, particularly those with a dominant position, might frown at this, it is good news for consumers. There was a need for a toughening up of the OFT.
Jonathan Scott, head of EC and competition law at Herbert Smith, says: “The OFT had a need for powers to assemble evidence of the existence of cartels, something which is extremely difficult to prove. If you are in a price-fixing arrangement with other companies, you are going to make efforts to cover your tracks.”
While the European Commission's competition directorate is empowered to kick down doors to get the documents it needs, Bridgeman has to rely on requests and informants to get information.
Even the Conservatives had promised to toughen up consumer legislation. They too published a draft Bill, which would give Bridgeman more investigative powers, but they never got around to pushing it through Parliament.
Now Labour, in the form of the President of the Board of Trade, Margaret Beckett, looks set to go even further. Beckett's draft Bill, which after public consultation will form the basis of a Bill expected to come into force in summer 1998, gives Bridgeman's staff at the OFT the power to forcibly enter premises and copy documents.
The Bill also gives a formal right to third parties – such as competitor companies and customers or consumer groups representing them – to challenge companies involved in anti-competitive practices and to seek damages against them.
In line with the EC competition powers under articles 85 and 86 of the Treaty of Rome, Bridgeman will also be allowed to impose fines equivalent to 10 per cent of UK turnover for companies held to be abusing their dominant position or entering into anti-competitive agreements.
The Bill proposes to scrap the Restrictive Trade Practices (RTP) Court and the 20-year-old Act that set it up, and turn the Monopolies and Mergers Commission (MMC) into a “court of appeal” from the OFT. It will be renamed the Competition Commission and will also take over the duties of the RTP Court.
Beckett goes even further than articles 85 and 86 – she is allowing the Competition Commission to retain the powers of investigation it had as the MMC. It will look at whether the structure of the market is skewed against the public interest while the OFT will investigate individual cases of anti competitive agreements.
The Government has, however, softened its stance on competition in one respect. Beckett has gone back on pre-election talk of companies having to prove “public interest” before a merger can go ahead. This idea was dropped, after Labour peer Lord Borrie's commission advised against it. Nevertheless, what remains will concern lawyers representing big companies who might suddenly find themselves engaged in an activity that could be construed as an abuse of dominant position or a cartel.
Richard Thomas, Clifford Chance's head of public policy, believes the new powers of third parties could herald significant changes in the nature of competition policy, “particularly if aggrieved competitor companies take advantage of the new remedies to attack practices which damage them”.
Thomas reckons there will be a surge in the number of applications to the OFT, as more companies seek clearance for mergers or exemptions from the ban on anti-competitive agreements. Until now the OFT had used a kind of checklist to ensure that business agreements complied with UK competition rules. Now what is deemed anti-competitive will be decided by John Bridgeman, based on the effect of the agreement on the market.
Scott worries about turf wars between the sector regulators (such as the utilities regulators and the Independent Television Commission) and the OFT and the Competition Commission. “There must be a clear carving out of roles for the utility and sector regulators,” he said.
Consumers and companies will have the right to appeal sector regulators' decisions to the Competition Commission. A Government review of the powers of regulators is currently under way.
Stephen Kon, SJ Berwin & Co's head of competition, said: “There is room for rationalisation of regulators. It's not efficient to have both the ITC and OFT looking at the bundling of satellite channels by BSkyB.”
Ashurst Morris Crisp's head of competition Roger Finbow highlights a bigger worry – the Government's power to overrule the MMC's decisions. Finbow acted in Bass's proposed £200m takeover of Carlsberg-Tetley, a merger blocked by Beckett in June, when she overruled the MMC's qualified approval. He also acted in National Express's proposed takeover of Scotrail and Central Trains, both of which bids Beckett referred to the MMC in May, against the OFT's advice.
“It's a question of political intervention,” says Finbow. “Everyone feels the same, it's just that I have particularly suffered from it.”
Scott, however, questions this assertion: “There has got to be a point at which politicians reserve the right to say 'I am going to balance the competition issues against other issues which I as Government need to have regard to.'”
Beckett puts it like this: “Wide-ranging remedies in the public interest should be subject to Parliamentary scrutiny and the responsibility for them should rest with ministers.”
The biggest question must be whether the OFT will get the resources it needs to wield its extensive new powers. Most lawyers do not see the OFT kicking down doors.
“They will probably do the odd trophy case every year, mainly as a deterrent,” predicts Scott. But to have credibility, the OFT will have to start hiring more lawyers and economists. Of a total staff of 400, it currently has only 12 lawyers and 18 economists.
Scott hazards: “I think you will start to see solicitors seconded there, and maybe a revolving door policy will evolve, with young solicitors seeing a two- or three-year spell at the OFT as good for their career.”
Whatever happens, lawyers will be needed more than ever.