Digital Markets, Competition and Consumers Bill

Lord Faulks Excerpts

Committee stage
Monday 29th January 2024 Grand Committee

The amendment would clearly put into the Bill what the Government have expressed as their intention, something which I sense this Committee strongly supports.

[Lord Faulks (Non-Afl)]

My Lords, may I crave the indulgence of the Committee? Unfortunately, I missed the first minute of the speech made by the noble Baroness, Lady Jones, as I was trying to comply with etiquette and remain in the Chamber until the conclusion of the opening speeches on the Rwanda Bill. If the Committee permits, the points I was going to make have largely been made by others, so I can be particularly brief.

At the heart of this legislation is the decision: do we want the regulation to be done by the DMU or, de facto, by the courts? This is, effectively, a twin attack. First, there is the proportionality provision inserted into the statute, and now we have the change in the test of appeals on sentences. The combination of those two seems inevitably to lead to further court involvement, and it is not the intention that courts should be the regulator. The courts are there, as the noble Lord said, to stop executive overreach or some illegality in the approach based on usual JR principles. They are not there to second-guess what the DMU has done.

If the amendments, or something like them, are not accepted, I fear that an appeal of the merits will involve going into everything, as other noble Lords have said. We would have the war of the lever arch files, so eloquently described by the noble Lord, Lord Vaizey, at Second Reading. Lawyers will act, and continue to act, and it will frustrate what we are trying to achieve.

[Lord Vaizey of Didcot (Con)]

My Lords, as I have been cited by the noble Lord, Lord Faulks, it is incumbent on me to speak on the same principles as him. Everything that I want to say has already been said, but that will not stop me putting in my two pennies’ worth. This is the stuck-record part of the debate, where I repeat what I said at Second Reading and simply put on record my support for all these amendments.

I will pick up on what some noble Lords said in their comments. I wholeheartedly endorse what my noble friend Lady Stowell said. In the real world, if you have an appeal on the merits of a fine, it seems almost impossible to see how you stop leakage into an appeal on the merits of the case. So you are, in effect, back to square one and, as the noble Lord, Lord Faulks, put it, the war of the lever arch file.

The speech by the noble Lord, Lord Tyrie, was fascinating and a master class on the different aspects of judicial review: an appeal on the merits, an appeal on JR-plus, or an appeal on JR. When I was a Minister, I dealt with this debate with Ofcom, when it started the process of wanting to move from appeals on the merits to appeals on JR. To the layman, an appeal on the merits is in effect a full rehearing of the case: you go back to square one and simply have the trial all over again. An appeal on JR means that you at least have to identify a flaw in the reasoning of the regulator when it comes to a judgment. If, in effect—here, I bow to the expertise of the noble Lord, Lord Tyrie—settled law informed by European directives means that some element of the merits of the case are taken into account in a JR appeal of a regulator, so be it. It may be the difference between a passive and an active decision, as it were.

In this Committee, we understand how you can judicially review a decision by a government department. When a regulator is making an active decision to bring a prosecution, and it then finds guilty the company that it is prosecuting, some element of the merits may well be taken into account. It seems to me that how it is drafted may well be important, but the clear intent should be that any appeal, whether on the actual decision or the level of the fine, should be an appeal based on JR, when it comes to how a judicial review is understood when appealing a decision by a regulator.

I finish with the simple point—this is the stuck-record part—that it clearly is the settled will of this Committee, and I suspect it will be the will of the House when this comes to Report, to constantly guard against giving the SMS companies too much opportunity to wriggle out of decisions made by the regulator.

I should add that a lot of the tone of my remarks at Second Reading and in Committee might make it seem that I am in the pocket of the regulator. I am certainly not. I have lots of concerns that, at other times, would make me say that I think the regulator often strays too far and interferes in far too many cases. I am not resiling from the fact that there clearly should be an opportunity to appeal its decisions. Often, it backs away before it gets to a decision, but its interference in mergers and takeovers sometimes leaves me slightly baffled, particularly when it involves companies that have very little presence in the UK market. I am not saying, by any stretch of the imagination, that the regulator is perfect, but I know that any procedure it undertakes, as it will do when this law is passed, will be long and expensive, so we must guard against making it even longer and even more expensive.

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[Viscount Camrose (Con)]

I hope very much that I have a point. I think it would be best for me to write to my noble friend and the members of the Committee to clarify that.

[Lord Faulks (Non-Afl)]

I am listening very carefully to what the Minister says. It would be helpful if he would give an idea of the sort of arguments that would be open to somebody who is challenging a decision as to the fine and the merits. Will they be circumscribed simply by saying, “Well, it was too much”, or will they be able to look in some detail at the whole process and the interventions that ultimately resulted in the fine? How will those two things be kept separate from each other?

[Viscount Camrose (Con)]

As the noble Lord says, the intent is to keep those two separate. During and on the merits appeal for the penalty, the penalised firm could argue that the value of the penalty exceeded the crime, or that the breach took place inadvertently or by accident. It could not argue, however, that no breach took place; the fact that a breach took place is the premise against which the rest of the penalty appeal takes place. If the firm then wants to appeal that no breach took place, that would be done under JR, not on the merits.

The boundaries of the merits appeal process are explained in the Explanatory Notes for Clause 89. If those can be made any clearer, I am happy to engage on that. We will continue to listen to any concerns that noble Lords have on this important point.

I turn now to Amendments 72A and 72B from the noble Lord, Lord Tyrie. I thank him for his amendments, which raise an important question about the appeal standard across the wider digital markets regime. These amendments would align the appeal standard of all regulatory decisions in the regime with appeals carried out against Ofcom’s decisions taken under the Communications Act 2003. I am sure that many noble Lords are aware that the appeal standard in the Communications Act regime is often referred to as judicial review-plus. Although Parliament amended the Act in 2017 so that these appeals are to be decided on judicial review principles, the CAT has ruled that, due to retained EU law, it must also

“ensure that the merits of the case are duly taken into account”.

To turn back to this Bill, the Government heard the strong views expressed by your Lordships on the Select Committee, among others, on the importance of retaining judicial review. The changes made by the Government in the other place sought to uphold the use of the well-known judicial review principles for appeals in the new regime, except for those about penalties, as I have already discussed. Judicial review principles balance robust scrutiny of the CMA’s decisions with the need for the CMA to use its expertise to act quickly and iteratively to resolve issues.

As we discussed on the second day in Committee, the Government have made an explicit requirement for the CMA to consider proportionality when imposing conduct requirements and PCIs. As I set out during that discussion, it is right that interventions should be proportionate, but we are clear that any appeals of these matters should be heard under standard judicial review principles.

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[Baroness Jones of Whitchurch (Lab)]

My Lords, I thank all noble Lords who have spoken. Again, in the vast majority of the contributions, we seem to have reached a wide degree of consensus, although not totally, in the light of that from the noble Lord, Lord Tyrie.

Noble Lords have made a number of important points. The noble Baroness, Lady Stowell, was quite right to take us back to the practicality of appeals on a merits basis; I will come back to the Minister’s response on all that because things are still not clear. How can we be sure that such an appeal will not open the whole case up again? That is at the heart of what we are debating here.

The noble Lord, Lord Holmes, said that we do not really understand why this must be different. Why is it such a special case? It has not been explained to us why this exception has been made.

I very much appreciate the point made by noble Lord, Lord Faulks: at the heart of this issue is whether we want regulation by the DMU or by the courts. There is a real danger of us drifting towards the latter with the Government’s amendments.

The noble Baroness, Lady Harding, rightly reminded us that regulators cannot afford to take too many risks. There is a fundamental imbalance, with regulators perhaps being forced to be risk-averse because they do not have the budgets of the big tech companies. We understand the danger of the David and Goliath situation that we are in here. It is all too easy to create a system where big tech companies’ lawyers can rule the roost.

The Minister said that decisions on penalties will address what an SMS firm has or has not done. He said that a decision will address not whether a breach has occurred but what led to the breach. Our concern is that we are going to go back over all the evidence of what led to a breach, whereas the fine at the end of it represents the end of the decision-making and is meant to be the deterrent. Again, I will look at Hansard and the Minister’s subsequent letter, but it seems to me from his explanation that he risks opening the whole case up again.

I listened carefully to the noble Lord, Lord Tyrie. I understand his experience in all this. Importantly, he said that there is not just one model here—that is, we have a number of regulators that do things differently. As he pointed out, the Government have previously supported the JR model; we must be reminded of that. The noble Lord also raised his concern about what happens if mistakes are made. If mistakes are made, they would be made in the process leading up to the decision, not the subsequent fines. A merits appeal on the fine would not really help if the decisions had happened further up the decision-making process.

I agree with the noble Lord, Lord Vaizey, that the regulators are not perfect. However, as we have discussed and will discuss again, we need stronger regulatory oversight. That will come—indeed, it needs to come—from stronger parliamentary oversight, which we will continue to debate in our discussions on this Bill.

I come back to the fundamental point made by the Minister. I listened to him carefully but I am still not clear how he will keep the stages separate. How will he keep the decision-making separate from the decision on the penalty? If SMS firms argue that the penalty is too high, they will have to revisit the evidence leading to the decision.

[Lord Faulks (Non-Afl)]

Can the noble Baroness confirm that, in her understanding, there is nothing in the Bill itself that makes that separation clear?

[Baroness Jones of Whitchurch (Lab)]

I thank the noble Lord, Lord Faulks; he is absolutely right. Again, we look forward to the Minister’s letter that will try to explain how these are two separate processes and that there is a clear cut-off point between one and the other, because I am not sure that that was really what he said in his reply. To be honest, I do not see how they can be separate, as that is not how the systems work. The appeal will be, as I think the Minister said, on what the SMS firm did to lead up to that penalty; therefore, the whole case would have to be revisited.

I do not know that the Minister persuaded many people on this matter. I am sure that we will continue to debate this, and we look forward to reading his letter, which I am sure will explain things in a little more detail. In the meantime, I beg leave to withdraw my amendment.