Groceries Code Adjudicator Bill [HL]

Lord Borrie Excerpts

Tuesday 26th June 2012 Grand Committee

[Viscount Eccles]

My Lords, I am grateful for that intervention, and no doubt we shall come on to discuss the climate of fear. The concern of the National Farmers’ Union is a pretty difficult issue because very few farmers are direct suppliers to supermarkets and so they are not covered by the code. Indeed, the detriments identified by Professor Lyons, to which I shall come in a moment, include the extended chain of supply to the supermarkets. Perhaps I should say at this point that I owned some cows for a while, but maybe it is not an interest I need to declare on this occasion. It is a difficult issue and we shall come on to it. I do not accept that the problem of indirect suppliers and the question of arbitration so torpedoes the present regime that it is necessary to change it. It may be necessary to do so and I am here to be persuaded, but at the moment I would not change it.

Of course, with regard to farmers, I think that we are going to talk primarily about milk and cheese production. Some 53% of milk finds its way into fresh milk, 27% into cheese and the remaining 20% into manufactured products. While I think we will be talking about that, I do not believe it quite lies within the remit of where Professor Lyons was finding detriments, except on the point of indirect supply.

The first detriment that Professor Lyons worried about was that he thought that the third-party intervention—however that was structured, but at the time the description was “ombudsman”—would be counterproductive. I suppose that was based on “two’s company and three’s a crowd”, or some such version of it. He thought that independent arbitration with the addition of monitoring by the Office of Fair Trading was a better option than the intervention of a third party for the interests of the industry.

Secondly, Professor Lyons worried very much about anonymity. He did not believe that it could be maintained and he cited the German experience. I have no doubt that we will discuss anonymity in more depth as we go along. Thirdly, he thought that justifiable investigations had a very limited potential because he did not see the third party intervening in disputes or discussions between supermarkets and suppliers about a particular contract. Her Majesty’s Government do not think that that is the way that the adjudicator should work. Professor Lyons thought that finding justifiable investigations would be quite difficult because of the length of the supply chain and the lack of ability to look into actual disputes. I am sure that we will want to discuss that more.

Next, Professor Lyons thought that any third party—an ombudsman or now an adjudicator—could be seen to be in support of suppliers, and of them throughout the supply chain. He thought that that itself could become anti-competitive. He saw difficultly in dealing with complaints from suppliers about buyers and at the same time achieving benefits for the public, particularly long-term ones. The successful outcome of intervening in a contract between suppliers and supermarkets would presumably be that the suppliers got better terms. It was difficult to link that to a benefit to the public—that link was pretty weak.

Professor Lyons also saw any third party intervening in this market as being subject to external pressures and to the almost inevitable regulatory creep. Regulatory creep has been a feature of our lives in recent years, as noble Lords have seen in the amendments to secondary legislation which have tended to make legislation more complicated and severe, not lighter or less severe. Finally, Professor Lyons said that this would be a much more expensive system than leaving things as they are.

Quite a lot of these points have been discussed but I submit that they have not really been properly dealt with and therefore, as I am probing and as we go through, I am sure that these subjects will recur. It will be interesting to see where the argument leads us. I very much agree with Professor Lyons. Sometimes, minorities can turn out to be right. His minority report was very good and absolutely on the ball. I am still left with the question: why have we got this Bill? I beg to move.

[Lord Borrie]

My Lords, perhaps I may intervene at this point. Most Members of the Committee know that I had a connection with the OFT—the Office of Fair Trading—but retired from it 20 years ago, after many years as its director. I no longer have any position of that kind and therefore do not have anything formally to declare.

However, references to the Office of Fair Trading by the noble Viscount led me to consider whether there was a great deal of point in establishing—for a fairly narrow field of anti-competitive complaints from farmers and others who complain about the power of supermarkets—a specially appointed new body created as a corporate sole, with all the debates, complications and so on that are involved in doing so. The subject of the Bill covers a fairly narrow sphere. It does not deal with all complaints against supermarkets, but only those connected with groceries. It does not even apply to all supermarkets, but only the 10 that are especially designated.

There are surely many reasons for thinking that there may not be an adequacy of work for the groceries adjudicator to justify the appointment of an adjudicator and, as one of the schedules states, a deputy adjudicator and all the paraphernalia of an office—although I admit that it is stated that back-office facilities may be provided by the Office of Fair Trading. If back-office facilities can be provided by the Office of Fair Trading, why are these powers not simply given to the OFT to monitor, to check, to listen to complaints and if necessary push those complaints further to the Competition Commission, and so on?

The points made by the noble Viscount are quite convincing but, as the phrase goes, we are where we are. We have given the Bill a Second Reading. We are now at the Committee stage. We can go backwards, of course, but there would then be an emptiness and nothing immediately to take its place because the Office of Fair Trading does not have all the different powers intended for the adjudicator under the Bill. I therefore return to the point that the Bill in front of us will set up a particular body—the groceries code adjudicator—and we have details in front of us to elaborate, consider and change, as a normal Committee does. In summary, it is not worth while continuing with the fundamental points made by the noble Viscount, although there is a lot of value and a lot of point in what he said. However, that would represent a backward step and we would, in effect, be replacing entirely the contents of the Bill with something else.

[Lord Razzall]

My Lords, perhaps I may respond to the remarks made by the noble Lord, Lord Borrie, by saying that I entirely agree with him. However, given the preliminary comments by noble Lords, one thing ought not to be forgotten—we are not starting here from scratch. This proposal emanated from the previous Government and has been heavily consulted on across all relevant parties. I know that your Lordships tend to take the view that what was in party manifestos does not necessarily bind your Lordships, but all three political parties included the creation of the adjudicator in their manifestos, and we should have that on the record before the debate goes a lot further.

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[Lord Borrie]

My Lords, I am reluctant to disagree somewhat with my noble friend, who has argued so eloquently that this is a judicial appointment, but I do not think that it is. It may be close to it, and there is nothing unusual in certain positions being on the borderline of administrative and judicial. However, in examining the role of the adjudicator, we have heard the noble Viscount, Lord Eccles, and others mention that, when this was first introduced, the title given to the man or woman in charge was “ombudsman”. There seems to be general agreement that that was not suitable, so we came to “adjudicator”.

Because we have adopted—or the Government have adopted—“adjudicator”, I strongly sympathise with my noble friend Lord Browne, because “adjudicator” suggests that there are at least two sides and that this is a judicial role. However, one thing that I have noticed, looking at the detail of what the adjudicator can and cannot do, is that he cannot settle or determine or arbitrate on a civil claim made by a particular supplier and a particular supermarket. It is of course typical for a judge, or indeed an arbitrator, to determine civil disputes of that kind, yet the detail of this Bill tells us that this is something that cannot be done by the adjudicator. The word “adjudicator” may not be entirely appropriate and may have led the noble Lord, Lord Browne, along a false path.

[Lord Browne of Ladyton]

Will my noble friend do two things for me before he sits down? First, will he address with the same certainty the issue of whether this is a quasi-judicial role? With respect, it is not fatal to my argument that this role does not meet the high test for a judicial role that my noble friend has—arbitrarily, I may say—imposed on us. Secondly, will he also address the ability or potential ability of this adjudicator to impose financial penalties? Does that cause him to reflect on whether this is the sort of role that he is describing?

[Lord Borrie]

With respect to my noble friend, he has not, in his question to me, dealt with the fundamental point that I raised, which is that the adjudicator is unable to determine civil claims between suppliers and supermarkets. The adjudicator has to go to a separate civil claim in the civil courts, or through arbitration. That is fundamental in my argument that this is not a judicial appointment and that involvement of the Judicial Appointments Commission would be inappropriate.

“Quasi-judicial” is a fascinating phrase, and we heard it a lot in the Leveson inquiry. It is amazing how Ministers have got accustomed to defining and knowing what quasi-judicial is, even though they did not always pronounce it the same way. It was a quasi-judicial role that the Minister had in determining whether the bid by Mr Murdoch for BSkyB should go to the Competition Commission. That was determined by everybody who spoke at the Leveson inquiry to be quasi-judicial. In answer to the noble Lord, Lord Browne, I have already admitted that the job of the adjudicator in this Bill is close to being judicial and, if it is close to being judicial, it is certainly close to being quasi-judicial.

The noble Lord, Lord Browne will know that the Judicial Appointments Commission has nothing whatever to do with Ministers and others who have quasi-judicial functions. It does not have that role. The Government must have found it difficult to know whether to call this person an ombudsman, an adjudicator or something else. He or she will be a regulator with powers to fine, like other regulators that are set out in statute. That is what is intended here. Some of us are in favour of this being in the Bill, whereas the Government want it only to follow a new regulation. Be that as it may, the adjudicator is closer to being a regulator than a High Court judge.

[Lord Browne of Ladyton]

My noble friend set a test for me that he knew I must fail, because the adjudicator does not have the power to impose a decision on a civil dispute—and because I failed this entirely arbitrary test, which he imposed with his customary skill, my argument was apparently nullified. Perhaps I may engage him by referring to another area of life in which there is a separation of powers. We have settled health and safety legislation in this country. Where there is a prosecution for breach of health and safety regulation before a criminal court, the court does not have the power to impose civil compensation, because that is not its function. However, it is a judicial process. Of course, another court can impose a civil remedy by awarding compensation for breach of health and safety regulations as an indication of negligence where somebody is injured, but it cannot impose a criminal penalty, because that is not its function. However, both courts have judicial functions. The fact that one court cannot impose its will on the jurisdiction of another does not nullify the fact that they both have judicial functions. Why does that logic not serve me well in this argument?

[Lord Borrie]

The only thing that I can say is that it has been the deliberate intention of the Government through their drafting of the Bill to deprive the adjudicator and to deprive anybody else except civil courts—in a completely different process—of the ability to determine a civil claim or something like it. As the noble Lord, Lord Browne, has considered this matter very deeply and carefully, there cannot be a lot between us. We are talking about a matter of title or name. Whatever that is, it does not seem suitable for the Judicial Appointments Commission to be involved in the appointment of this individual in a narrow field of the grocery trade, with the fairly narrow role provided by the Bill.

[Viscount Eccles]

Perhaps I could ask the noble Lord, Lord Browne, whether we have any other adjudicators.

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[Lord Teverson]

My Lords, I should like to speak to my own amendment in this group, Amendment 26. Something that particularly interested me in the speech made by my noble friend the Minister at Second Reading was that, following the considerable work carried out on this Bill in its preparation stages, the provision allowing bodies to make a complaint was widened. In her opening statement, the Minister set out a list of bodies that could bring complaints before the adjudicator. The major change was that instead of only suppliers themselves being able to complain, the Bill specifically opens up the ability to do so to trade associations and third parties. I want to use the amendment moved by the noble Lord, Lord Browne, to ask whether that is absolutely the case.

I note that Clause 4(1) states:

“The Adjudicator may investigate whether a large retailer has broken the Groceries Code if the Adjudicator has reasonable grounds to suspect that”.

While I do not have the depth of knowledge of the noble Lord, Lord Browne, on these issues, which he has demonstrated so well, I want to be clear that what it means is that whoever reports a reasonable suspicion that there has been an abuse, the adjudicator can get involved. In fact, I was slightly concerned by his Amendment 23 as it seems restrictive, although I am not sure that that was his intention. It refers to,

“either at the Adjudicator’s own initiative or following a complaint by a third party with an interest”.

To me that almost excludes a farmer or a supplier, which I would say is the second party. It seems confusing, but perhaps I do not understand it completely.

I am also aware that Amendment 27, which is in this group although the noble Lord, Lord Howard, has not spoken to it yet, seems to be even more restrictive. The Minister’s assertion that we should be as broad as possible in terms of the adjudicator is very important, not only in his being able to take evidence—which is my own amendment—but also in his being able to have a wide range of people reporting problems to him. That is fundamental to the proper working of this Bill.

As regards my Amendment 26, it is important to emphasise that the adjudicator can consider any information that it seems appropriate to consider. I am not certain but that may well be covered by default by the Bill. I would like to test that and to ask the Minister to respond on whether that will exist within the wording of the Bill.

[Lord Borrie]

I join in the query of the noble Lord, Lord Teverson, to the Minister, which I hope she can answer, to make sure that those who can make complaints are not only individual farmers, producers or whatever but also trade associations such as the National Farmers’ Union or the British Retail Consortium.

I hope that my noble friend Lord Browne does not think I am going for him today in the various matters on which we disagree, but I am slightly worried—as I think the noble Lord, Lord Teverson, was—by the phrase in Amendment 23,

“complaint by a third party with an interest”.

If the third party is a trade association, then I suppose that parties one and two are the supplier on the one hand and the supermarket on the other. But then, what does “third party with an interest” mean? If that is the trade association, does that mean that it has to have some interest other than the fact that the supplier, who has got a real complaint, is a member of it? Is that what “interest” is meant to mean, or must it be wider than that? That is the query I put to my noble friend Lord Browne but there is also a general point about where complaints can come from. I hope that it is from as widely as possible.

[Lord Howard of Rising]

My Lords, I feel I should first finish declaring my interests: I am a farmer as well. I find it rather gripping to find the noble Lord on the other side defending the farming industry so strongly during this debate.

My Amendment 27 reflects the wording which was included in the draft Bill and limits those who can complain to parties to the transaction. If anybody else can come and stick their oar in, it is a source of endless trouble. For example—you may find this a little extreme but I am certain it would happen—if I am supplying a supermarket, my competitor thinks that I am doing well and would like to have my contract, he could put in a complaint—anonymously, of course. The supermarket would say, “Oh,” and the whole process would start. While the process was going on, my competitor could leak that it was me who complained—although of course I never did—and the result would be that when my contract came to an end there would be little incentive for the supermarket to continue with me. My competitor might do rather well, at that stage. I just give you that as an example of the sort of thing that would happen if anyone, all and sundry, could make a complaint which had to be listened to.

I ask the Minister one question. In the notes for the draft Bill, there was a comment that the adjudicator has no power to require people to provide information for the purpose of deciding whether to commence an investigation. I would like confirmation that this is still the case in the Bill as it has been presented to the Committee.

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[Baroness Byford]

I will speak to my Amendment 34 in this group. It is a simple, probing amendment to ask whether the wording implies that a supplier will never be mentioned and that, if a supplier is mentioned, he or she does not need or deserve a second chance to comment. For example, if a retailer is mentioned in the draft, it can see the copy and comment on it. As a result, the draft may be changed. Should it not be open to all parties involved in the investigation to know both the original wording and the comments made?

[Lord Borrie]

I cannot see how the Minister can possibly have a good reason for rejecting the perfectly straightforward amendment of by my noble friend.

[Baroness Wilcox]

My Lords, the reports that the adjudicator must publish at the end of each investigation are a vital part of his or her accountability and an important way of keeping retailers, suppliers and consumers informed of his or her work. It is therefore right that we should carefully examine what is contained within them. To take each of the amendments in turn, I find the amendment in the name of the noble Lord, Lord Browne of Ladyton, interesting and he has made his case eloquently. It is indeed reasonable that the report should give the reasons for the decisions reached, as well as the decisions themselves. I would be happy to speak with him further about this amendment before the next stage of the Bill.

I am less sure of Amendment 33, which is proposed by my noble friend Lord Eccles. I think that it is reasonable to say that the adjudicator’s report need not always identify the retailer concerned. This is because there may be cases where the adjudicator considers that the matter can more appropriately be dealt with privately. For example, if there were no breach of the code, the adjudicator might conclude that it would be unfair to name the retailer that had been investigated, due to the possible reputational damage.