Groceries Code Adjudicator Bill [HL]

Lord Borrie Excerpts

Thursday 28th June 2012 Grand Committee

[Lord Howard of Rising]

My Lords, Amendment 37A essentially would give the supermarkets a right to appeal if they felt that there was a miscarriage of justice or that something has not been done correctly. The adjudicator will be policeman, judge and jury. It seems wrong that there is not some form of mechanism whereby someone who feels that they have been wrongly treated should be able to have recourse. I am sure that the adjudicator will be brilliant but people make mistakes and mistakes are made. On the previous occasion when we were in Committee, the noble Lord, Lord Browne, spoke well on the need for things to be fair and to be seen to be fair. This is an extension of that argument.

I also think that the retailers we are talking about are above averagely susceptible to bad reputation. Naming and shaming is very effective and there should be a way in which they can stop that before it happens if there is likely to be a miscarriage of justice. Noble Lords may recall that during the passage of the Financial Services and Markets Act under the Labour Government, the noble Lord, Lord Saatchi, introduced a right of appeal. I am sure that the Conservative Party would not want to change that sort of precedent. In the interests of justice and fairness, I hope that the Minister will give full attention to what I have said. I beg to move.

[Lord Borrie]

My Lords, the noble Lord, Lord Howard of Rising, has made a significant point. He did not specifically mention one aspect of what he is proposing; namely, that in relation to appeals Clause 9(4) already provides for an appeal against the imposition of any financial penalty, which is the most serious penalty that might arise from the adjudicator’s decisions under this Bill.

Whereas the Bill states that the appeal is to the High Court in England and Wales and the Court of Session in Scotland, the noble Lord, Lord Howard of Rising, wants it to be to the Competition Appeal Tribunal. I can see a lot of point in that. After all, the adjudicator’s basis for action is to deal with the excessive risks which are transferred from the retailer to the supplier and the possibility of unexpected costs being shifted from one to the other. Given that those proposals emanated, as we all know, from a report of the Competition Commission, it may be very suitable that any appeal against an adjudicator’s financial penalty should be to the Competition Appeal Tribunal, as the noble Lord is suggesting, rather than the ordinary courts, if I may put it like that—the High Court and the Court of Session.

The Competition Appeal Tribunal has a president who is a High Court judge and specifically experienced in competition matters. The other members of the tribunal are lay members who are appointed because of their knowledge and experience of competition matters. The noble Lord, Lord Howard, has an excellent point but he wants to go further and allow an appeal not only against financial penalties but against any of the other powers of the adjudicator, such as naming and shaming or requiring information et cetera. I do not think, any more than those who devised the Bill think, that there needs to be an appeal on those matters or powers that the adjudicator may exercise.

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[The Lord Bishop of Wakefield]

My Lords, I support the amendment. My commitment to the issues lying behind the legislation goes back a very long way. In terms of suppliers and retailers, it is rooted in the issues of the locality in which I have lived for the past nine or 10 years. This instinct has been reinforced by my experience more widely. Wherever possible, I have been trying to urge us to move forward on this and it is greatly encouraging to see that something is happening at last. At the root of this is the issue of the fairness of the market. Going back many years, when there were lots of debates about how effectively employers and employees were represented in the labour market, the key issues were its fairness and whether the balance of power was too strong in one direction or the other. That is the problem with which we are dealing. Anything that we can do to ensure that the legislation as finally enacted gives the adjudicator proper teeth so that abuses can be addressed. Some of the abuses that have come to my knowledge have been quite hair-raising. I hope that we support this amendment and that we make sure, if it appears that what is required is being ignored, that we allow the adjudicator the possibility of taking other forms of enforcement.

[Lord Borrie]

It is very useful to have the views of the right reverend Prelate the Bishop of Wakefield. He has attached his name to one or two amendments later, so we look forward to further contributions from him. I agree with my noble friend’s wish to ensure that if recommendations made by the adjudicator are not carried forward, he or she can come back to the Bill to see what other action can be taken, including the possibility of financial penalties.

Addressing a question to the Minister rather than to my noble friend, who proposed the amendment, Clause 6 states,

“the Adjudicator may take one or more of the following enforcement measures … recommendations … information to be published … impose financial penalties”.

I wonder whether the Bill already enables the adjudicator to go from one to the other if the first proposal—recommendations—is not accepted, or is it the Minister’s view that he can do only one of those things and not come back and open up lines of discussion as to whether one of the other measures can be taken later?

[Baroness Byford]

My Lords, I am grateful for this amendment. It gives me a chance to seek clarification yet again. My understanding from the noble Lord, Lord Borrie, was that the adjudicator would go choose between (a), (b) and (c). I did not think that it would be (a) or nothing, (b) or nothing, or (c) or nothing. I hope that as it stands it will be able to look at different ways of coming back to it.

I go back to an earlier contribution that I did not come in on. It keeps being said that there is little evidence. It is not surprising that there has not been much evidence in the past; that is why the Bill is necessary. In the past an individual supplier was the only person who could bring evidence. That individual supplier was known and future trading was very difficult.

Only this morning, I was in conversation with a vegetable supplier whom I happened to meet informally. She was telling me that one of the retailers she supplies had agreed a contract which had gone through, but, because the retailer thought that the circumstances were different, it had asked for a rebate on the contract that had been agreed. Surely that is extremely unacceptable. I hope that the Bill will deal with that. The reason that we have not had evidence is that people would not have come forward as the Bill will enable them to do.

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[The Lord Bishop of Wakefield]

My Lords, once again I support the general tenor of the amendments. Some of the same issues that were raised by the noble Lord, Lord Browne of Ladyton, in the previous debate are here. It seems to be about complexity, and the ability to take action swiftly is crucial. The Minister talked about fairness to retailers but it seems to me that part of the issue is getting fairness into the system. There is a clear unfairness to suppliers and it is once again about trying to change the culture and address the question of balance within the market.

I shall give two examples. The first concerns an individual retailer who insisted that a particular supplier of dairy products must, if he wanted to continue to be a supplier across the board of this very large retailer, pay a premium of £150,000. Without that premium the products would no longer be retailed in a very large number of stores within the chain. The supplier refused for two reasons. First, he felt that there was a lack of morality in the demand and secondly, he could not afford to do it. Happily he was switched on enough to be in touch with people who immediately complained that they could no longer get the products. In our marvellous electronic world, he was able to send them down the road to another local retailer. That is one example with one retailer.

The other example, which we all know about only too well, has been a continuing debate in the past 10 years on the issue of milk suppliers and getting a fair price for milk. Here it involves not just one retailer but a series of retailers acting together in their own best interests. I can understand their best interests. Perhaps if I were one of them I might want to push the same line. But in the end, it has the effect of driving suppliers into an impossible position.

First, we need swift action because it soon becomes clear that whatever legislation we produce is effectively weak as it gets pushed back all the time. Secondly, I take the debate about naming and shaming, and costs, but I only have to refer noble Lords to yesterday’s news about Barclays Bank. Whether the management of that bank will survive in their present roles, I have no idea, but it will not do them very much good to find that they have to pay £290 million in fines. I am not suggesting that we are talking about that level of fine here, but unless there are serious mandatory controls, we shall enact legislation that in principle is thoroughly positive and good, but which in practice does not get the market more evenly balanced.

[Lord Borrie]

My Lords, I am very happy to follow the right reverend Prelate as I agree entirely with everything that he said. He gave useful examples. I attached my name to the amendment tabled by the noble Baroness, Lady Byford, because I was convinced—I think I said something like this at Second Reading—that this provision should be in the Bill rather than there being just a possibility of a statutory instrument being laid at some later stage, with all the delays and question marks that that would involve. It should be in the Bill that there is a possibility of a financial penalty.

The noble Baroness, Lady Randerson, used a word with which I entirely agree, saying that the Government’s approach by not putting the power in the Bill is cumbersome. It is a cumbersome way of going about things. I am so glad that the noble Viscount, Lord Eccles, is here. If I may refer to some of the things he said earlier this afternoon, if this power goes into the Bill, I do not envisage the adjudicator taking a great deal of time thinking about penalties, the amount, and all the rest of it. I use a word most often used in criminal law, which I hope will appeal to my noble friend—deterrence. The possibility of a financial penalty —whether anywhere near that imposed by the Financial Services Authority on the bank yesterday—has a deterrent effect that is extremely important. The adjudicator will not be judged on the amounts of fines that he imposes to prove that he is a good or a useful man in his post—he will be judged as much by the effect of his powers upon the industry.

[Lord Browne of Ladyton]

My Lords, my understanding of both these amendments is that they are intended to have the same effect. One may be more elegant than the other, but I think that they probably have the same effect, and I support both.

I do not intend to rehearse the arguments that the noble Baroness who moved the amendment made comprehensively. However, there are some other points that are worth making, and points that we have debated already this afternoon which are worth drawing on.

First, the noble Viscount, Lord Eccles, as we began our deliberations this afternoon, encapsulated the problem at the heart of the Bill in relation to penalties. He set out quite fairly the fine as a penalty and enforcement mechanism, and the choices that face the Committee and Parliament in relation to the Bill. Either we have a piece of legislation that includes financial penalties or we do not—or, because of the road that the Government have gone down, we have a piece of legislation that kind of includes financial penalties.

However, the decision on whether these financial penalties will ever become operative lies outwith the control of those who are being asked to legislate—other than that they will, by the interaction of Clause 9, Schedule 3 and, I think, Clause 23, get an opportunity, via a statutory instrument, to have a short debate which will probably be conducted with very few people in the room, in a comparatively short time and with no power to amend. If the Secretary of State comes to the view that the history of the adjudicator’s experience thus far reveals that the operative penalties—the recommendations and the naming and shaming—have proved to be insufficient, these financial penalties can be activated.

That means that, in terms of this Bill, we cannot have any debate on what level of penalty is appropriate, what sort of circumstances would trigger a penalty as opposed to one of the other enforcement mechanisms or whether we would like rules to be made so that violations of the code can be differentiated by their nature and attract different types of penalties. I do not think that that is constitutionally appropriate. Given the nature of the sort of penalty that we must expect, it is not appropriate for Parliament to be denied the opportunity to have such a debate if the penalty is to be meaningful. I say that because this code can be enforced only against the top 10 retailers in the country. These are enormous businesses. If financial penalties are to have any effect on them, they will have to be significant.

However, there is a much more concerning issue about this construction. I am sure that the noble Baroness—or those advising her—may say, or even be able to find, an example of where something similar was done in the past in order to support doing it again—although the example will probably turn out not to have been extraordinarily successful. I am sure that in responding the Minister will say that Parliament has supervision of this to the extent that it allows this mechanism and that it is entirely proportionate—and I am sure that the word “proportionate” will be used regularly in the response. Of course, the mechanism does not give Parliament any role if it disagrees with the Secretary of State’s persisting view that financial penalties are not appropriate.

The Secretary of State holds all the cards now. The Secretary of State is constrained by this to allow financial penalties only if he concludes that the other powers are inadequate. If the Secretary of State does not conclude that, how are they accountable to Parliament? How on earth can Parliament make the Secretary of State accountable in terms of these mechanisms for not triggering this power, other than the inadequate process of Questions or maybe a Question for Short Debate? There is no mechanism whereby Parliament can say, “This is not what we intended. There are egregious breaches of this going on and the Secretary of State is not willing to trigger this power”, and that is inappropriate. There is not even a continuing method for amending this legislation or a clause that can be resurrected in some fashion. There is just no method for making the Secretary of State accountable for a continuing failure to recognise what is going on and to leave a piece of legislation ineffective because a part of it has not been enacted.

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[Lord Borrie]

My Lords, I speak to Amendments 87A and 87B in this group. They stand in the names of the noble Earl, Lord Sandwich, and the right reverend Prelate the Bishop of Wakefield, who are unable to be here, so, as the third name, I am here to speak to the amendments.

As the noble Baroness, Lady Randerson, said, Clause 15 deals with the supervision of the adjudicator and his work and performance by the Secretary of State’s reviews. The times of the reviews were discussed just a moment ago by the noble Baroness. I sympathise and agree with the points that she made. The amendments of the noble Earl, Lord Sandwich, the right reverend Prelate and me are designed to link the Secretary of State’s reviews of the adjudicator’s work with the original objectives of the Competition Commission for the code. One of the objectives of the groceries code was to stop the transfer by supermarkets to suppliers of excessive risks and unexpected costs. The amendments would spell that out in the Bill.

Amendment 87B is concerned with the level of the climate of fear among the supplier community and would recognise it as a potential factor that might impinge upon the adjudicator’s ability to fulfil his or her functions. In particular, it is possible that the supplier climate of fear might be a reason for zero action by the adjudicator—but that is not a reason to abolish the adjudicator. Rather, the adjudicator would need to improve his or her processes in the light of the supplier context. We have not yet come to Clause 16, which deals with the possibility of transferring the adjudicator’s functions or even of abolishing the adjudicator, but it is plain, as we shall see, that the Secretary of State’s reviews of the adjudicator’s work may be grounds for activity on the part of the Secretary of State under Clause 16.

The point of Amendments 87A and 87B is to clarify the grounds on which the adjudicator might be reviewed or criticised by the Secretary of State and to make clear in the Bill that there is an important link—which one wants to spell out because it is not there at the moment—between the original objectives of the groceries code and the actual work of the adjudicator, which is of course reviewed from time to time.

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Moved by

[Lord Borrie]

107: Clause 19, page 8, line 5, leave out “may” and insert “must”

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[Lord Borrie]

My Lords, the origin of the Bill, as we all know, stems from a Competition Commission report that found fault with major supermarkets in ways that I shall not trouble to delineate now. It seems appropriate that the levy should be imposed on major supermarkets to pay for the financing of the groceries code adjudicator’s position and office. However, I prefer the wording of the amendment of my noble friend Lord Knight, so I will not push my amendment. I certainly will not push the point about not requiring the Secretary of State’s consent.

[Lord Knight of Weymouth]

My Lords, I shall speak to Amendments 108 and 112, and to Amendment 121, which refers to Clause 20, because it is related to the same point. For the sake of efficiency I will do it in that way. Indeed, I shall speak in relative support of the amendment of my noble friend Lord Borrie. I am relaxed about whether the wording is “must” or “shall”. I am sure that there are parliamentary draftsmen who have a very strong opinion on the most effective word as long as the meaning remains. For the sake of plain English we need to be clear about what we are doing here in Parliament. I believe that it is the Government’s intention that the adjudicator’s office should be fully funded by the levy on the major retailers and that the taxpayer should not fund it. If that is the Government’s intention they should say so and be clear in the Bill in the same way as they are about other bodies that are funded by levies. That clarity would help everybody and that is what the amendments would do.

Amendment 121 to Clause 20 would remove the option for the Secretary of State to make grants to the adjudicator so that, again, the office would be fully funded by the major retailers. That is all that that amendment would do. Amendment 112 would remove the provision for a flat rate levy from the 10 major retailers and replace it with a requirement for the levy to be calculated in proportion to annual turnover. As we have heard, there is a significant difference between the sizes of major retailers whose turnover is more than £1 billion. I think that it would be fairer, certainly initially, for the levy to reflect turnover. It may be that in time the levy would reflect those retailers that occupy the most time for the adjudicator and cause the highest number of substantiated complaints and investigations. However, for now, relative to turnover is a better solution. As I recall I think that that was what the Competition Commission recommended. I look forward to a willing Minister.