This Bill was first introduced in 1994 and it has undergone a number of changes since then. The Bill was concerned with two issues in 1994, the exemption of mergers from the Competition Act and the introduction of proper enforcement proceedings to underpin the existing 1991 Act.
When the Bill was introduced in 1994, the merger provision caused considerable controversy. Many people were concerned that the exemption of mergers from the Competition Act would have opened the opportunity for many mergers to pass through, allowing large companies to acquire smaller ones without proper scrutiny. This caused a degree of debate across the House. On taking Government, we undertook to review that element in discussion with the social partners and that has been done. I have decided to drop that element from the Bill and to establish a mergers and competition review group to look at that, among a number of other issues relating to competition law.
The second major new element in this Bill introduces criminal offences and penalties in respect of competition law violations. Ireland has stood out for a number of years as having a weak competition law. When that was corrected by the 1991 Act we provided legislation that only introduced the notion that the Competition Authority would certify and licence certain agreements. We also allowed for third parties to take court action. However, we did not introduce, like other countries, enforcement procedures where an independent third party, such as the Competition Authority, could take enforcement actions and investigate third party complaints and on foot of those investigations, take the necessary steps to deal with alleged abuses of competition. The reliance of the 1991 Act on private actions by individuals in the court has proved less than fully effective and this Bill is changing that.
The major issue, as an introduction to this Bill, is to stress the importance of competition and effective competition laws. We are a small open economy dependent on trade. Increasingly, what is traded are no longer manufactured goods but services. The competitiveness of our exports is dependent not only on the direct production of goods and services but increasingly on non-traded services provided to business in the direct trading sector. It is important that we establish a broad competitive environment in Ireland.
The Culliton and various NESC reports emphasised that the competitiveness of our economy does not depend solely on labour costs or any one dimension but on competitiveness across a range of both public and private sector activities. It is important that we sustain the strong competitiveness of our economy with a system of law that says that anti-competitive agreements are not acceptable, that they restrict production and employment, increase the cost to consumers and business and damage the economy.
Estimates regarding the potential gains from a more competitive environment in the Irish economy indicate that conservatively 1 per cent of GNP would be saved if more effective competition law was in operation. This would amount to £360 million a year. Any loss of employment or excess charging on that scale is unacceptable and effective and modern competition law, with proper sanctions, must be enforced to deal with the problem. This is the background to the Bill and the reason the Competition Authority is being given enforcement powers. The Bill will also provide for the imposition of fines in serious criminal cases.
Most Senators appreciate it is not realistic to expect a third party, a small player or even a consumer, to have the resources to challenge a much larger player, anti-competitive agreements or abuses of dominant positions in the courts. This was never a practical avenue and it is not surprising in retrospect that few companies have been in a position to take that route to try to enforce their rights and ensure there was no anti-competitive behaviour. It is correct that provision is made not just for direct action by an individual who claims to have suffered damage going to the High Court but also for the appointment of a director of competition enforcement. The director will have powers to act on behalf of consumers and companies which are being damaged by anti-competitive behaviour.
The Bill contains proposals to introduce new powers of enforcement through the appointment of the director of competition enforcement. The Bill also gives the Competition Authority power to undertake wide ranging investigations on its own initiative. Hereto-fore, such investigations could only be conducted at the explicit request of the Minister. It is unsatisfactory that competition law is dependent on political action. A strong independent agency, which is committed to ensuring that competition law is effectively pursued, is required.
The new changes will not be achieved without cost. A major change which is required to underpin the legislation is the provision of additional resources, for example, an increase of 50 per cent in the staff of the Competition Authority. This will ensure a much more effective pursuit of competition law. The investment of these resources will be fully justified by the potential improvement in economic performance.
As I mentioned earlier, I have established a competition and mergers review group. Its work, which will start when the Bill is enacted, will be extremely important. Many serious matters need to be addressed in this area, not least the consolidation of competition and mergers legislation which is currently spread over a large number of statutes, including the 1978 legislation relating to mergers, the 1991 competition legislation and this Bill. The review group is chaired by Mr. Michael Collins, SC, and is representative of various bodies, including large and small firms, consumers, trade unions, the legal profession, academics and my Department. It will obtain the views of all interested parties in the competition field and will make recommendations on the medium to long-term effectiveness of all our competition legislation, particularly the mergers legislation in the context of legislative consolidation.
The House will be aware that the original proposals were an attempt to balance the claim that there was excessive bureaucracy — it was described as double jeopardy — in relation to mergers under mergers and competition legislation and the concern that large companies would have a clear field to take over small companies without proper scrutiny. This is an important area which requires the group's attention. It will look at things like the groceries order and take into account changes and developments at EU level and world-wide competition policy. At EU level there is a considerable move to try to consolidate their own competition law and to promote new areas of national competence. There is a lot of change in this area and it justified a review by a well qualified group which I have put in place.
The Competition Act, 1991, is based on Articles 85 and 86 of the Treaty of Rome. Throughout the old cumbersome procedure of the restrictive practices legislation a Minister introduced specific orders to govern competition in a particular sector and those orders created criminal offences which the Minister could pursue. In practice this proved to be very unwieldy. It did not get to grips with many anti-competitive practices in the economy. It was very slow to respond and there were few effective enforcement procedures undertaken under it. That was repealed in 1991 and instead we went with Articles 85 and 86 of the Treaty of Rome. Those Articles essentially made it illegal to enter into anti-competitive behaviour or anti-competitive agreements and they made it illegal to abuse a position of market dominance in the marketplace.
The basic elements of the competition law were the introduction of those concepts into Irish law. The Competition Authority was established to implement it. Its principal functions under the Act up to this have been to either certify agreements that are notified to it which are not anti-competitive or, alternatively, where the agreement was in principle in breach of the Act to licence it as an acceptable agreement on grounds that there were other issues in the public interest that superseded the anti-competitive aspects. That was the basic machinery of the original legislation.
This Bill is filling a deficiency in the original legislation. We are to have a Competition Authority that not only does the reactive things of leasing through agreements notified to it and deciding upon them but it also has the active powers of investigation responding to third party complaints of anti-competitive behaviour and, ultimately, of taking enforcement action either under the civil code or, in extreme cases, under the criminal code. The old system of depending on third parties to take actions has proved ineffective and we are correctly moving on from that stage in our competition law.
I would like to draw the attention of Senators to specific provisions of the Bill. Sections 2 and 3 set out the offences and penalties with regard to breaches of the rules of competition, that is dealing with the criminal aspect of the legislation. Section 7 gives the Authority public enforcement powers under the civil code and also in relation to summary offences in the criminal code. Section 8 allows the Authority at its own initiative to study and analyse any practice or method of competition. Section 9 provides for the appointment of one permanent member of the Competition Authority with the title Director of Competition Enforcement who will concern himself with the enforcement aspect of the Authority's work.
Section 2 provides for the creation of a criminal offence in respect of breaches of the rule of competition and section 3 sets out the penalties. It creates offences where an undertaking breaches the existing competition law as defined under sections 4 and 5 of the old Competition Act. Effectively, what were originally civil offences are now becoming criminal offences with separate provisions in relation to good defences in order to provide for the change in making something a criminal offence. Sections 4 and 5 are being transposed to a criminal section.
Section 4 of the original Act spells out offences in relation to anti-competitive behaviour. Those offences refer to rules of competition and state that all agreements between undertakings, decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State are prohibited and void, in particular those which directly or indirectly fix purchase or selling prices or any other trading conditions, limit or control production, technical development or investment, share markets or sources of supply, apply dissimilar conditions to similar transactions with other trading parties, thereby placing them at a competitive disadvantage and agreements which make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which by their nature and according to commercial usage have no connection with the subject of such contracts. The original section provides for those specific offences and for a more general offence of anti-competitive agreement.
The other element, abuse of dominant position, which will now be criminalised in certain cases under this Bill again refers to section 5 of the original legislation. In addition, section 5 (1) provides that any abuse by one or more undertakings of a dominant position in trade for any goods or services in the State or in a substantial part of the State is prohibited and shall be an offence. Such abuse may consist in directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions, limiting production, markets or technical development to the prejudice of consumers, applying dissimilar conditions to similar transactions with other trading parties thereby placing them at a competitive disadvantage and making the conclusion of contracts subject to acceptance by other parties of supplementary obligations which by their nature and according to commercial usage have no connection with the subject of such contracts.
Prosecution for a criminal offence under the above headings will be initiated either at the level of summary conviction or conviction on indictment. Summary proceedings would be initiated in the District Court by the Competition Authority in less serious cases. Where on summary conviction an undertaking is found to be guilty it shall be liable to a fine not exceeding £1,500 or where the undertaking is an individual, he or she shall be liable to a prison sentence not exceeding six months plus the fines or either of those punishments.
Where conviction on indictment is involved, cases would be taken on behalf of the State by the Director of Public Prosecutions on foot of a file prepared by the Competition Authority and, where conviction results, the provision is for a fine not exceeding £3 million or 10 per cent of turnover — whichever is the greater — of the undertaking in the financial year ending in the 12 months prior to the conviction. Where an individual is convicted on indictment, the same fine and percentage applies but there is also, at the discretion of the court, provision for a term of imprisonment not exceeding two years or both.
There has been a good deal of debate about these criminal sanctions, specifically debate concerning the higher level of proof required in order to obtain criminal convictions. The debate centred on whether criminal offences should be confined to a limited number of specific offences — that is, per se offences — along the line of US competition law, whether criminalising a civil offence raises the burden of proof to beyond reasonable doubt and whether the good defences provided in section 3 undermine the chances of possible conviction.
With regard to specific offences, the offences which we are creating are more specific than those which exist under US competition law which has been developed on the basis of case law. We sought legal advice about the best way to create a criminal offence. Our advice was that the existing sections 4 and 5, which have their root in competition law have more specific offences and provide for a more general possibility of the courts recognising, as case law evolves, particular types of anti-competitive behaviour that were not envisaged by the original authors, would have the opportunity to evolve case law based on the specific cases with which it was presented. We have taken advice and are of the view that this is the best way forward. In some cases it creates specific offences, such as price fixing, and in others it gives the courts scope to evolve law. That is a sensible and pragmatic way to deal with this issue.
As regards the burden of proof, a much higher burden of proof is required to prove a criminal case than is needed to take a civil action. A criminal case must be proven beyond a reasonable doubt. This is a difficult hurdle to cross, and rightly so, because a criminal offence is very serious and carries with it the potential of imprisonment. There will be a need to establish proof beyond reasonable doubt. In the case of a conviction on indictment, this must be obtained when a jury has been convinced beyond reasonable doubt that an offence has taken place. It is right that the criminalising of such offences be incorporated in the Bill because of their potential gravity. These offences can affect people's livelihood and have the potential to be seriously damaging. On the other hand, it must be recognised that, if such offences are criminalised, the legislation must contain requirements relating to proof.
Some people have made the contention that the ante will be raised in civil cases if tests are introduced to examine whether criminal offences are proven beyond reasonable doubt, which they must be. This argument, advanced by people within and outside the Houses of the Oireachtas, was assessed and we are satisfied that it does not hold water. Proof will be required in civil cases on the balance of probability as it always has been. There is no support for the proposition that where an individual set of events gives rise to potential civil and criminal liabilities the civil claim falls to be determined on the same standard of proof as the criminal claim.
Another issue which gave rise to concern was that relating to good defences. In that area, the Bill provides for a good defence for defendants in criminal cases under specified conditions. A defendant, for example, can prove that he did not know, nor in all the circumstances of the case could he be reasonably expected to have known, that the acts concerned done by him would constitute a breach of the competition legislation. Concern was expressed that this was an easy escape clause and would undermine the effectiveness of the Bill. However, the important issue here is that the defendant will have the opportunity to prove this. It is most likely in such cases that he would be subject to cross-examination and to prove by reference to the legislation that he did not know, nor in the circumstances of the case could he be expected to have known, that what he was doing was in contravention of competition law. A defendant who chooses to use this defence will be required to establish that that is the case. This will not undermine the effectiveness of the legislation.
It is incumbent on us to provide a good defence clause in cases where new criminal offences are being established. Such cases involve certain specific offences but they also give the courts potential to consider new areas of anti-competitive behaviour which have not been envisaged or listed. To balance this, there must be a reasonable provision relating to good defences. That balance has been well struck in the Bill.
Concerns were also expressed about potential avoidance of the provisions of this legislation through the way in which companies were constructed, or by their directors stating that they had no responsibility for decisions taken by someone down the line and that the buck does not stop with those who control the company. This matter was the subject of considerable concern during the Committee Stage debate in the Dáil. Under the penalties provision I am providing to meet those points by making it possible to link the undertaking to people working there down to a director, manager or similar officer level in regard to an offence. The provision is that where a person is proceeded against, it shall be presumed until the contrary is proved that that person — the director or manager — consented to the committing of the offences, unless they establish the opposite is true.
In the definition of "director", a director includes a person in accordance with whose directions or instructions the directors of the undertaking concerned are accustomed to act. The purpose of this provision is to ensure that those who are influential in the running of a company but are not listed as directors are encompassed by this Bill. Concerns were expressed in the Lower House that we should have effective ways of pursuing those who control companies but are not listed as the directors.
Expert evidence is another area related to a reasonable prospect of achieving convictions. A great deal of concern was expressed in the Lower House that the convention of criminal courts has been to not admit expert evidence. It was believed that would undermine the possibility of effectively pursuing competition law because, due to the technical nature of the offences, the evidence presented to the court by the Competition Authority, for example, would be a very important element in a case. I have provided explicitly for the admission of expert evidence in criminal commercial cases, which has not been the norm to date. I have made a provision, subject to the court's discretion, that such expert evidence will be admitted if the witness appears to the court to possess the appropriate qualifications relating to the matter at issue.
This section also provides that the court has jurisdiction to rule out the admissibility of such evidence when it considers the ends of justice would be best served by so doing. In other words, we are not trying to circumscribe the court to say it must admit expert evidence in all cases but are introducing a presumption it will admit expert evidence unless it would be unfair to so do. Under the section, the expert cannot express an opinion as to the guilt or innocence of the party concerned. The expert will provide technical expertise regarding offences and some of the agreements in place, but will not reflect specifically on the guilt or innocence of the person concerned.
Section 5 introduces the notion of category certificates, which business will generally welcome. Category certificates mean it can be provided en bloc that certain types of agreement are not anti-competitive in nature. That avoids businesses having to submit detailed notification of all the individual agreements within that class. For example, certain areas of mergers would benefit from a category certificate because they would not have to make individual notifications to the Competition Authority and wait for certification. That provision will be generally welcomed because it will reduce the bureaucracy of competition law and improve the flow of work through the Competition Authority.
Section 7, as I mentioned earlier, is probably the key section as it extends the right of civil action under the existing section 6 of the Competition Act, 1991. It provides that either the Minister can take an action in the High Court or a damaged individual can take a court action. I strongly believe it is inappropriate for Ministers to be the determinants of those actions. It is not appropriate for our competition law to be dependent on ministerial action and intervention in business in this way. We need a strong, independent, arm's length competition enforcement agency. Therefore, we are providing that the enforcement powers will be extended beyond the Minister, or third parties, to include the Competition Authority. That is typical practice throughout Europe and will be broadly welcomed here.
It will ensure that if small suppliers or small players who are being victimised cannot, because of various relationships or their lack of resources, take effective court actions, there will be an independent third party capable of taking those actions on their behalf. This will be a welcome improvement in the existing competition provisions.
The Authority can now take civil action for an injunction or a declaration by the court for breaches of sections 4 and 5 of the Competition Act, 1991. This provision will also benefit the Competition Authority where it succeeds in taking a civil action and achieves a declaration that a practice was anti-competitive. It also gives the damaged party an opportunity to take an action and claim compensation. Under the Bill, the aggrieved person will have a right of action against an undertaking and against any director, manager or other similar officer who authorised or consented to anti-competitive activity.
In relation to consent, where it is proved that an activity unlawful under this Bill was carried out by an undertaking it shall be presumed, until the contrary is proved, that each director, manager or other similar officer authorised or consented to that activity. These provisions are being inserted to make directors responsible for their activities. The issue of consent was debated in the Lower House where it was felt strongly that the onus should be placed on a director or manager to demonstrate whether they had authorised or consented to anti-competitive behaviour rather than the other way round. This approach was agreed to and has been incorporated in the Bill.
Section 8 allows the Competition Authority, on its own initiative, to study and analyse any practice or method of competition. Under the 1991 Act, the Authority had to await a request to them by the Minister. This provision gives the Authority better scope to initiate investigations and studies and generally promote a more competitive economic environment.
Section 9 deals with the appointment of one permanent member of the Competition Authority with the title of director of competition enforcement. I am also providing for the appointment of back-up staff, including professional economists, to ensure the Office of the Director of Competition Enforcement is effectively staffed. Some concern was expressed that the same body should not be engaged in certifying, licensing and enforcing. However, the office of the director of competition enforcement will be separate from the Competition Authority. The duties of the director are clearly set out in section 9 of the Bill. The idea of licensing and enforcing is not new. The Environmental Protection Agency licenses and enforces also. The decision on whether an offence took place or a liability was incurred is a matter for the courts and not for the Authority. I do not see a problem here and I am satisfied we have struck the right balance. Section 10 provides for the payment of fees for merger notifications to the Minister under the Mergers and Take-overs Act, 1978.
In my survey of this Bill, I hope I have given some flavour of what the legislation is about. We are living in a global market where competitive forces are increasing daily and we have to be effective. We have to bench-mark ourselves against the very best. There is no room for a non-trading sector which practises anti-competitively and adds to business and consumer costs.
Ireland must have a strong competitive culture which is backed by proper competition legislation that is independently executed by an organisation such as the Competition Authority. This legislation will benefit the economy in the long term and respond to reports such as the Culliton and the NESC which have encouraged us to go down this route. I commend this legislation to the House.
Unfortunately, because of a Government meeting, I will have to leave the House at a certain stage but I will be taking careful note of what is said and I will respond to issues raised in my absence.