The Enterprise Act 2002 and Competition Law
| Published date | 01 March 2004 |
| DOI | http://doi.org/10.1111/j.1468-2230.2004.00486.x |
| Date | 01 March 2004 |
The Enterprise Act 2002 and Competition Law
Cosmo Graham
n
The EnterpriseAct 2002 represents a major change in competition lawand policy
within the United Kingdom that the government claims will have important
positive e¡ects on the working of the economy. Insofar as a belief in markets and
competition has becomea new consensus as regards the governanceof the nation,
then an e¡ective competition policy has a central role in attempting to ensure the
proper functioning of markets. The changes made by this Act also resonate with
other themes; in particular, the Act can be seen as a further development of the
‘‘regulatory state’’, or new public management, through its removal of power
from politicians and towards independent agencies.
1
In addition, the Act neatly
encapsulates the United Kingdom’s ambiguous relationship with Europe. On the
one hand, the institutional structure thathas been created bears signsof the in£u-
ence of Article 6 ECHR. On the other hand, unlike the Competition Act 1998,
the EnterpriseAct does not adopt a European Community model; indeed, it self-
consciously rejects the EC approach to merger control in a fundamental aspect.
Finally, there is the question of the relationship between domestic competition
policy and European Commu nity competition policy. The Act comes into force
at a time when EC competition pol icy will change dramatically from May 2004,
through a decentralized system and is also facing major challenges in relation to
the system of merger control.
2
BACKGROUND
Competition policy has a relatively long history in the United Kingdom. There
are common law cases on restriction of competition in the nineteenth century,
admittedly aimed mainly at trade unions, as well as even older case law on com-
mon callings or what might be referred to today as natural monopolies or essen-
tial facilities.The modern history of competition law stems from theWhite Paper
n
Faculty of Law, University of Leicester. Member of the Competition Commission. All the views
expressed in this article are in a personal capacity. My thanks to Giorgo Monti for his very helpful
comments on this piece in draft.The usual disclaimer applies.The Enterprise Act also makes important
changes to insolvencylaw which are discussed by Sandra Frisby in this Issue. See also: R. Parry, ‘Uni-
ted Kingdom: Administrative Receiverships and Administrations’ in K. Gromek Broc and R. Parry
(eds), Corporate Rescue: An Overview of Recent Developments from Selected Countries in Europe (Deventer:
Kluwer,2003).
1 The idea of a ‘‘regulatory state’’ means di¡erent things; for an overview of the l iterature see
M. Moran,‘Understandingthe Regulatory State’(2002) 32 BritishJournalof PoliticalScience 391.For
the purposes of this note my use is close to M. Loughlin and C. Scott, ‘The Regulatory State’
in P. Dunleavy (ed),Developmentsin British Politics5 (London: Macmilla n,1997).
2 See the new Regulation on procedure:Council Regulation (EC) No 1/2003 of 16 December20 02
on the implementationof the ru les on competition laid down in Articles 81 EC and 82 of theTreaty
and Council Regulation(EC) No 139/2004 of 20 January 2004 which amends the existi ngregula-
tion on merger control.
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(2004) 67(2)MLR 273^288
on employment in 1942 and subsequent inquiries into restrictive practices which
ultimately culminated in the Restrictive Trade Practices Act 1956. Legislation on
mergers and monopolies came later w ith the culmination of the post-war system
in the Fair Trading Act 1973 (FTA) which created the O⁄ce of Fair Trading (OFT),
headed bya Director General of FairTrading(DGFT) and a systemof mergerand
monopoly investigations which could cover both monopolies and oligopolies.
3
The systemcreated by the FTA for the control of monopolies and mergers had
three characteristics.
4
First, it was dominated by high level administrative and
political discretion. This was inherent in the very terms of section 84 of the
FTA, which talkedabout the‘‘public interest’’as being the crucial matteron which
decisions had tobe made.The FTA merely listeda number of factorswhich might
be taken into account in deciding the public interest, it otherwise left the de¢ni-
tion of thepublic interest as open-ended, thus leaving it for thedecision makers to
decide what to take into account. This went along withthe central role granted to
elected politicians.The Secretaryof State decided whetheror not to make a mer-
ger reference to the Monopoli es and Mergers Commiss ion (MMC), and, if the
MMC decided that there were public interest concerns, the Secretary of State
could decidewhether or not to accept any recommendations and decide on what
remedies he or sh e thought were appropr iate. The role of the OFT in mergers was
to give non-bindi ng advice on whether or not a refere nce was appropriate, to give
advice on remedies and tomonitor undertakings give nby companies. In relation
to monopolies, a similar system existed, although here the OFT, as well as the
Secretary of State, could make references to the MMC, although the Secretary
of State could direct an OFTreference to be laid aside.
The second characteristic, which followed from the high level of political in-
volveme nt, was that it was a closed and secretive system. There were no obliga-
tions on the Secretary of State to give reasons for why a merger was or was not
referred. The OFT’s recommendations on any particular merger case were not
published, al though the Secretary of State would state whether or not the recom-
mendations had been followed. Nor was there anyobligation onthe Secretary of
State to follow the recomme ndations of the MMC or to explain why she or he
had followed, or not, the recommendations. Indeed, the only part of the process
that was published was the reportof the MMC to the Secretaryof State.
Finally, there was little legal involvement.The courts always declined to inter-
fere with the workings of this system, largely endorsing the practices operated
by the competition authorities.
5
Procedures were inquisitorial, largely based on
written evidence and the stages of any investigation were not necessarily thatclear.
The legal powers, which existed for imposing remedies, were rarely used by the
competition authorities, which preferred to rely on the more £exible device of
undertakings given by the companies concerned. Third parties, such ascompetitors
3 For the history see: S.W|lks, In the PublicInterest (Manchester: Manchester University Press, 1999),
H. Mercer Constructing a Competitive Order (Cambridge: Cambridge University Press, 1995) and
T.Freyer RegulatingBig Business (Cambridge: CambridgeUniversity Press,1992). R.Whish, Com-
petition Law (London: Butterworths, 3
rd
ed,1993)di scusses the common lawi n Chapter2.
4 A similar analysis is contained in P. Craig‘The Monopolies and Mergers Commission’ in R. Bald-
win and C. McCrudden (eds),Regulationa ndPublic Law (London:Weidenfeld and Nicolson,1987).
5 A Robertson,‘Judicial Review of Competition Law’ [2001] Judicial Review84.
The Enterprise Act 2002 and Competition Law
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