Of Megabytes and Men: the private use exception under the judicial lens and lessons for state aid claims

On 19 June 2015, the High Court allowed a claim for judicial review against the decision to introduce a narrow ‘private copying’ exception to the Copyright, Designs and Patents Act 1988 (the “CDPA 1988”). The decision is of interest to EU and competition lawyers for two reasons: (1) its examination of the standard of review in public law cases with an EU law dimension and also (2) its analysis of the state aid issues which were raised.

In R (British Academy of Songwriters, Composers and Authors and ors) v Secretary of State for Business, Innovation and Skills [2015] EWHC 1723 (Admin) (“BASCA”), the Court was faced with an application concerning the Secretary of State’s decision to introduce the ‘personal private use’ exception to the CDPA by virtue of a new section 28B, which allowed a person who had legitimately acquired content (music, films, books) to copy that work for his or her own private use without infringing copyright. However, it did not allow any reproductions to be given to persons other than the acquirer (e.g. family members, friends or colleagues, etc). The central plank of the Claimants’ thesis was that the assumptions on which the Secretary of State had proceeded were legally and factually incorrect, and that the inferences and conclusions drawn from the evidence could be challenged. The claim only succeeded on the latter ground – namely the judge found that “the conclusions and inferences which have been drawn from the evidence the Secretary of State has relied upon are simply not warranted or justified by that evidence” (at [20]).

Mr Justice Green reached this conclusion “applying almost any test of judicial review, howsoever intense or relaxed and deferential” (at [233]). However, a particular issue of contention before him was the standard of scrutiny which the Court should apply in this type of case, with the parties noticeably far apart (see [127]-[134]). The learned judge added to his recent thorough consideration of the issue in R(Gibraltar Betting and Gaming Association Ltd v Secretary of State for Culture, Media & Sport [2014] EWHC 3236 (at [99] – [122]) by identifying six relevant factors which affected the “question of intensity” (at [136]-[148]) namely (i) the nature of the issue being decided (ii) whether any margin of appreciation is incorporated into the decision (iii) the “economic” nature of the decision (although he emphasised (at [144]) that the complexity of a decision did not create a “lacuna in judicial review”, but merely meant that the Courts should not substitute their own view of the ‘correct’ decision) (iv) the effect on rightsholders (particularly restrictions of their fundamental human rights) and (v) the relevant components of “an intensive review”. Finally, he also concluded that (vi) “whether [a] provision [in a Directive] has direct effect or not […] does not mean that adjudication at the national level is always or inevitably a “hard edged” merits issue” (at [162]-[163]).

This approach must be set alongside the recent guidance of the Supreme Court on “the principle of proportionality as it applies in EU law” in the context of its decision on the challenge to the Quality Assurance Scheme for Advocates (R (Lumsdon and ors) v Legal Services Board [2015] UKSC 41), subject to that Court’s caveat that the principle’s application “depends to a significant extent upon the context” (at [23]-[82],  [103] and [108]). BASCA and Lumsdon are likely to be highly significant authorities on this point in the future.

More important for competition lawyers was Mr Justice Green’s approach to an interesting issue raised by the intervener, the Incorporated Society of Musicians. The evidence on which the Government relied had found, inter alia, that “[a] change in copyright exceptions will generate consumer benefits in the “secondary market” (e.g. the market for format-shifting, or back-ups). The total benefits generated may be very large relative to any potential economic damage to agents and creators” (at [59]). In its Updated Impact Assessment, the Government had specifically noted that the copyright exception would create substantial benefits for technology firms estimated as being “in the order of £258 million over ten years”, with value transfers of millions of pounds per year (at [289]-[290]). The Intervener argued that this was effectively a statutory licence granted to the tech industry with the State foregoing the opportunity to operate a levy on this permitted activity. The only issue challenged by the Secretary of State was whether there was an aid “through state resources” (at [287]).

However, Mr Justice Green raised his own “doubts as to whether other conditions of the definition [of state aid] are in fact met”, emphasising that “[t]he consequences of a Court applying Article 107 TFEU may be very serious and should not be so applied, by a side wind, without that Court having undertaken a proper analysis of all the factual conditions precedent” (at [300]). He also considered that “there ha[d] been no detailed evidence [….]” as to these other components and conditions which would have allowed him to make any firm conclusions without more (at [288]). This is a warning shot across the boughs of claimants making state aid points, whether as part of a wider claim or standing on their own, and the strict factual burden which they must meet.

The learned judge went on to derive six “propositions” from the relevant authorities on whether an aid had arisen from State resources where revenue had been foregone (at [306]). He concluded that “a clear line [must] be drawn between the sorts of advantage conferred by the state which do and do not amount to revenue foregone and an advantage conferred through State resources” namely between cases where “there is a clear and direct nexus of a relatively formal character between the advantage and the foregoing of revenue” and others where there is only “an estimation of a diffuse advantage spread across a wide class with no clear shape or definition or formality to it” (at [309]-[312]). The case illustrated the high threshold needed to satisfy this criterion of state aid: the Impact Assessment had arguably identified an advantage, a class of persons who would be beneficiaries, and the formal scheme which would give rise to it (the legislative scheme introduced by the statutory change), but there was no detail as to how the advantage would flow directly from the creation of the exception or any identifiable relationship between the two.

The end result in BASCA is still be decided by the Court following submissions by the parties, but the guidance given in relation to state aid may in fact make reliance upon state aid issues more “infrequent” (at [300]) and onerous than was previously the case.

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Settling cartel damages actions: contribution defendants beware

Anyone who has ever tried to settle a cartel damages case will know that the law relating to settlements is fraught with difficulty. The recent judgment of the High Court in IMI Plc v Delta Ltd [2015] EWHC 1676 (Ch) highlights some of the problems.

The basic position was fairly typical. The original claimants (“C”) were companies which claimed to have suffered damage as a result of a cartel among manufacturers of copper fittings. They sued one of the cartelists, “D1” (IMI), seeking full damages on a joint and several basis. D1 then sued another cartelist, “D2” (Delta), for a contribution under the Civil Liability (Contribution) Act 1978. C then settled with D1, leaving D1 to pursue its contribution claim against D2.

The 1978 Act provides that, in contribution proceedings, D2 can argue that it would not have been liable to C, but (subject to a proviso) it cannot argue that D1 was not liable. There are good policy reasons for that position, as D1 would be put in a very difficult position if it had to prove its own liability to C. In the vast majority of cases, this rule causes no unfairness – D2 is free to argue about its own liability to C, and the question of whether D1 was really liable to C is irrelevant.

There is, however, a proviso. Under section 1(4) of the 1978 Act, D2 can argue in its defence that D1 would not have been liable to C even assuming that the factual basis against D1 could be established.

The purpose of the proviso is unclear, although it must be intended to give some sort of protection to contribution defendants. It enables D2 to argue that the case against D1 was bad in law. But the case-law establishes that it also allows D2 to argue that, even assuming that the factual case advanced by C was correct, D1 had available to it some other factual defence – which the cases call a “collateral defence” – to C’s claim.

The IMI case explored what is meant by a “collateral defence”. In short, D2 wanted to argue that C knew about the cartel, and that its case against D1 was therefore limitation barred. The question was whether that issue – broadly, whether or not C was limitation barred – was: (a) part of the factual basis relied on by C against D1, and therefore not open to debate in the contribution proceedings; or (b) a “collateral defence” which D2 could raise in the contribution proceedings.

The Judge (Rose J) held that, given that it was part of the C’s pleaded case that they were not limitation barred because the cartel had been concealed from them, and given that C would have had to prove that assertion in the main claim, the issue was properly characterised as being part of the factual case against D1 which could not be challenged in the contribution proceedings. It was not a “collateral defence”.

It is worth noting that the only reason why limitation/concealment was part of C’s pleaded case was that they had raised it in their Reply in response to a limitation defence advanced by D1. This therefore raises the prospect that contribution defendants may be prevented from running particular arguments just because of the way in which the main proceedings were pleaded and/or the moment when those proceedings were settled (i.e. before or after a Reply). On the other hand, as the Judge noted, this is a difficult area of law. There is no perfect way of resolving the problem.

Stepping back from the legal detail, it is worth asking why any of this matters. As mentioned above, it is not normally unfair to prevent a contribution defendant from arguing that the original defendant, who settled the claim, actually had a valid defence. D2 should just get on with defending the case against it, without worrying about D1’s liability.

The problem arises because of the rules on limitation. The 1978 Act disapplies the normal limitation rules: D2 cannot argue, in defence of contribution proceedings, that it would not be liable to C on the grounds that C’s claim against it would be limitation barred. The benefits of this rule are clear. It means that, when C sues D1, D1 does not have to rush out immediately to sue D2. It can wait until it settles the claim, or until C obtains judgment against it, and then sue D2.

But the consequence is that D2 is denied the opportunity to run its limitation defence. In the IMI case, Delta tried to come up with a way around the problem by arguing that D1 should have run the limitation defence itself. The Court has held that it cannot do so.

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Recovering penalties from directors and employees: Safeway revisited

Can a company which has been fined for anticompetitive conduct seek to recover the fine from the directors and employees responsible by suing them for damages?

The question is moot in light of last week’s Supreme Court judgment in Jetivia SA and another v Bilta Ltd (in liquidation) and others [2015] UKSC 23, which casts some doubt on the Court of Appeal’s decision on this issue in Safeway Stores Ltd v Twigger [2010] EWCA Civ 1472.

Safeway had settled an OFT investigation into the alleged dairy cartel and agreed to pay a penalty. It then sought to recover the penalty from the directors and employees who had engaged in the anti-competitive conduct, alleging breaches of various contractual, fiduciary and tortious duties. On the question of whether it was entitled in principle to recover the penalty as damages, Safeway succeeded in the High Court but lost in the Court of Appeal. The problem was that its claim relied on its own unlawful act and was therefore barred by the illegality defence, ex turpi causa.

Although the illegality defence has been the subject of a series of House of Lords and Supreme Court decisions over recent years, there is still a surprising lack of consensus on certain fundamental points.

The most important area of disagreement for these purposes relates to the scope of what used to be known as the “fraud exception”. I say it “used to be known” that way because there are passages in Jetivia that suggest that, since the exception is wider than just fraud, it should now be known as the “breach of duty exception”. There are also passages which suggest that it isn’t really an exception at all, but rather an aspect of the general rule. It may be best simply to call it the Hampshire Land principle, after the 1896 case in which it was first clearly stated. What it amounts to is the proposition that, in certain circumstances, an agent’s knowledge of his breach of duty cannot be attributed to his principal in order to invoke the ex turpi causa principle to prevent the principal from suing the agent for breach of duty.

The question is whether the breach of duty exception would allow a company fined for an anti-competitive infringement to recover the penalty as damages from its employees and officers.

The essential reasoning in Safeway Stores was that, since the statutory infringements could be committed only by Safeway “directly” or “personally”, and not by the directors and employees, to allow Safeway to rely upon the breach of duty exception would be inconsistent with the statutory scheme and could not be permitted. It is that reasoning which the Supreme Court’s judgment in Jetivia calls into question.

Lords Toulson and Hodge offer the most critical analysis. At paragraph 160 they note that Safeway’s “direct” liability under the Competition Act arose through the acts of its employees as its agents, but agreed with an article by Professor Watts that:

“… it simply does not follow that because under the law of agency a principal becomes directly a party to an illegal agreement as a result of its agents’ acts, it is thereby to be deprived of its rights under separate contracts, not otherwise illegal, with its employees and other agents to act in its interests and to exercise due care and skill. Indeed, it would not follow even if the 1998 Act were found to have invoked some sui juris concept of direct liability other than the law of agency. In the absence of some countervailing policy reason, it is not just for someone who falls foul of a statute by reason of the acts of its employees or other agents to add to its burdens and disabilities by depriving it of any recourse against those employees or other agents.”

Lords Toulson and Hodge did, however, state at paragraph 162 that Safeway Stores may have been correctly decided for another reason, namely that the policy of the Competition Act might be undermined if undertakings were able to pass on their liability to their employees.

Lord Sumption had little to say about Safeway Stores: he described its reasoning in paragraph 83 but did not explicitly endorse it. It is interesting to note that, in an extra-judicial context, Lord Sumption has previously raised a doubt over whether the policy of the Competition Act really would be undermined if undertakings could pass on their liability to their employees. The alternative analysis would be that the best way to ensure compliance with the Act is to enable companies to take action against those responsible for breaching it.

Lord Neuberger, with whom Lord Clarke and Lord Carnwath agreed, indicated at paragraph 31 that he would take a great deal of persuading that the Court of Appeal did not arrive at the correct conclusion in Safeway Stores, but he expressed no concluded view on the topic.

Jetivia, which on the face of it had nothing to do with competition law (it concerned a VAT fraud committed by the directors of a company in liquidation), therefore sets the scene for a fresh challenge to the Safeway Stores decision.

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Fresh grounds and evidence before the CAT

On the face of it, BT was the main winner in this week’s ruling from the Competition Appeal Tribunal: see British Telecommunications plc v Office of Communications [2015] CAT 6. However, the decision, which makes interesting comments on the rights of parties to adduce new grounds and evidence on an appeal, raises important notes of caution to all parties which may wish to appeal or intervene in future cases.

The case is the latest stage in the disputes between BT and various mobile network operators (“MNOs”) over BT’s wholesale termination charges.

This particular dispute had been resolved by Ofcom in favour of the MNOs, pursuant to its dispute resolution powers in sections 185-191 of the Communications Act 2003. On BT’s appeal, however, Ofcom accepted that its determination was flawed in light of the Supreme Court’s subsequent decision in the related 08 numbers case (see our blog here). Ofcom also decided that, given that the matter was essentially a dispute between commercial parties, it was not going to take a particularly active role in the appeals. BT will therefore have to battle the appeal out against the MNOs, which have been given permission to intervene.

The principal question at this stage was what grounds and evidence the MNOs should be able to rely upon. Although the issue arose in the context of interveners, the CAT stressed that, whilst it would not lay down general rules about the rights of interveners to adduce new grounds or evidence (§51), in this particular case the MNOs are essentially in the same position as the appellant (§54). Just as any winning party in civil litigation would be able to ask the appeal court to uphold the lower court’s decision on different grounds, so too the interveners in this case must be able to ask the CAT to uphold Ofcom’s determination on grounds different to those relied on by Ofcom.

The CAT also held that, in deciding whether the interveners should be able to advance fresh grounds, it should apply “substantially the same test” as the test for fresh evidence established by the Court of Appeal in British Telecommunications plc v Office of Communications [2011] EWCA Civ 245.

Both of the above decisions – that interveners may be in the same position as appellants, and that the test for admitting new grounds is substantially the same as that for fresh evidence – establish important principles which are sure to be relied on in future cases.

Against that background, and applying the relevant principles to the facts of this case, the CAT took a rather stern approach to the question of which grounds and evidence the interveners should be able to advance. In broad summary.

  1. The first new ground was not allowed because it was not raised before Ofcom and was not within the published scope of the dispute.
  2. The second new ground was not allowed because, although it had been raised before Ofcom, it was not within the published scope of the dispute or in the provisional determination, and Ofcom could not be expected to “trawl through correspondence” to identify which points were in issue.
  3. The MNO’s third point was not allowed because, although the ground was live before Ofcom, their proposed intervention relied on fresh evidence and there was no good reason why that evidence had not been adduced before Ofcom.
  4. The MNO’s fourth point, which also relies on fresh evidence, was allowed. It is difficult to see how this decision could have gone any other way, given that the point had been live before Ofcom but further evidence was required to resolve it.

One final point of interest is that the CAT had to decide whether, given that Ofcom had admitted that the determination was legally flawed, the CAT should remit the outstanding issue for Ofcom to decide, or whether instead to decide it for itself. The CAT stated that ordinarily it would be predisposed to remit any outstanding issues to the primary decision-maker. On the facts of this case, however, given that the issue was relatively straightforward, the proceedings were well-advanced, and also that Ofcom had adopted a neutral stance, the Tribunal decided that it will resolve the outstanding issue itself at a future hearing.

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The ECJ on the Bus Lane Wars

Minicab giant Addison Lee recently suffered another defeat in the latest battle in the bus lane wars – this time at the ECJ. The outcome is no great surprise, but the Court’s approach to the question of when inter-state trade is affected is likely to be of broader interest.

On a reference from the Court of Appeal, the ECJ ruled that the policy of allowing black cabs but not minicabs to use London bus lanes did not appear to meet some of the criteria for prohibited State Aid under Art 107(1) TFEU (Eventech Ltd v The Parking Adjudicator Case C-518/13, 14 January 2015). The final decision was one for the Court of Appeal, the ECJ emphasised, but it’s now all but certain that Addison Lee’s State Aid argument will fail in that Court, as it had at the High Court.

Many will be familiar with the widely-reported background to the decision. In 2012, Addison Lee exhorted its drivers to drive in London bus lanes, in a provocative challenge to the long-standing policy of allowing only buses and black cabs but not minicabs or other vehicles to drive in such lanes. Two Addison Lee drivers took up the challenge were duly served with penalty charged notices, upheld on appeal by the Parking Adjudicator. Addison Lee (through Eventech Ltd, the registered keeper of the company’s minicabs) challenged the validity of one of the statutory orders underlying the policy, arguing that it was Wednesbury unreasonable and contrary to European and competition law, including the Art 107(1) prohibition against State Aid.

Art 107(1) provides (in summary) that any aid granted by a Member State or through State resources that distorts competition is incompatible with the internal market so far as it affects trade between Member States. Mr Justice Burton upheld the validity of the order and by extension the policy, dismissing Addison Lee’s Art 107(1) and other arguments (Eventech Ltd v The Parking Adjudicator [2012] EWHC 1903 (Admin)). Eventech was granted permission to appeal but the Court of Appeal stayed the proceedings and referred several questions on the applicability of Art 107(1) to the ECJ for a preliminary ruling. In summary, the ECJ held:

  1. The bus lanes policy did not involve the use of State Resources because there was no sufficiently direct link between the advantage given to the beneficiary (i.e. black cabs) and a reduction or risk to the State budget (§34).
  2. The policy was not selective – i.e. discriminatory between operators who were comparable – because of the factual and legal distinctions between black cabs and minicabs, such as the requirement that black cabs have wheelchair access and that their drivers have a “particularly thorough knowledge of the city of London”(§60).
  3. There was no de minimis threshold below which inter-state trade could not be affected under Art 107(1) (§68). Here, it was conceivable that that there might be an effect on trade between Member States, as the policy made it less attractive to provide minicab services in London and thereby reduced opportunities for foreign minicab operators (§70).

Much of the judgment will surprise no one, although the reasoning in parts is rather thin – how, one might ask, is The Knowledge at all relevant to selectivity?

Of broader interest is the expansive approach to the question of when inter-state trade is affected for the purposes of Art 107(1). This, after all, was a policy about a bus lane in central London, and there is no bar to citizens of any Member State driving either black cabs or minicabs – facts that the Court of Appeal took care to mention in its question to the court on the issue. Future claimants will be tempted to do exactly what Mr Justice Burton had deprecated: to invoke European law to challenge a regulation of basically domestic effect.

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Gallaher and Somerfield: will the CMA change its approach to settlement?

The latest episode in the tobacco litigation saga has seen Gallaher and Somerfield’s attempt to benefit from the collapse of the OFT’s case in November 2011 rejected by the High Court in R (Gallaher Group Limited and Ors) v Competition and Markets Authority [2015] EWHC 84 (Admin). Although the CMA will breathe a sigh of relief, Collin J’s critical judgment will give it food for thought on how it conducts early resolution negotiations in competition infringement cases in future.

The saga began with the OFT’s decision on alleged price fixing agreements between tobacco manufacturers and retailers. During the course of the OFT’s decision making process, which stretched from March 2003 to April 2010, Gallaher and Somerfield chose to enter into early resolution agreements (ERAs) admitting infringement of the Chapter I prohibition in return for reduced penalties. Other retailers and manufacturers appealed the OFT’s final decision. During the hearing of those appeals in late 2011, the OFT’s theory of harm fell apart before the CAT and its attempt to cobble together what was memorably labelled a “Frankenstein” case on liability out of its ruins failed (see here).

Gallaher and Somerfield, in opting to stick with their early resolution rather than appeal, had chosen badly. Their attempt to obtain leave to appeal out of time initially succeeded before the CAT, but the decision was overturned by the Court of Appeal, which stressed the need for legal certainty and finality (see our previous blogs on each decision: here and here).

A lifeline for Gallaher and Somerfield appeared, however, in the form of a statement on the OFT’s website in August 2012 that it was making a repayment to another retailer, TMR, which had also entered into an ERA, pursuant to assurances the OFT had made to TMR in 2008. It subsequently appeared that the OFT had assured TMR that if another party successfully appealed against the OFT’s decision, the OFT would grant TMR a corresponding reduction in its penalty. Gallaher and Somerfield sought similar payments, arguing that they should have been given the same assurances. When the OFT rejected these requests, Gallaher and Somerfield commenced judicial review proceedings, alleging unfair treatment in the negotiation of the ERAs.

On the issue of fairness, Collins J not only found for the claimants but levelled some criticism at the OFT. He found that assurances were indeed given to TMR, contrary to the OFT’s contention that the negotiations in this respect were inconclusive, and further stated that the matter had been “badly mishandled” by the OFT (§37). Moreover, the failure to notify other parties negotiating ERAs of the assurances given to TMR was contrary to the requirements of fairness and equal treatment placed on the OFT by the Competition Act and further contained in its own guidance paper on settlements. Collins J stated the principle as follows (§39):

Anything which can act as an inducement to enter into an ERA is likely, if not limited to the particular circumstances of a party, to be material and should be put to all parties. To give one party an unknown advantage where there are no special circumstances pertaining to that party is in my judgment clearly unfair.

The second issue which Collins J had to decide, however, was whether the claimants should benefit from the error the OFT had made in granting TMR the assurances and so receive payments analogous to those received by TMR. Notwithstanding his finding that the OFT had acted unfairly, Collins J held that Gallaher and Somerfield should not receive such payments. In doing so, he relied on the principle from a tax case, Customs and Excise Commissioners v National Westminster Bank plc [2003] STC 1072, that a mistake should not be replicated where public funds were concerned (§50). Accordingly, Gallaher and Somerfield’s claims were dismissed. As the Court of Appeal had done before him in its judgment refusing leave to appeal out of time, Collins J stressed that the claimants were expertly advised and fully aware that entering into the ERAs would in all likelihood make them unable to benefit from a successful third party appeal (§51).

The CMA has escaped having to make payments to Gallaher and Somerfield as it did to TMR. Its knuckles have, however, been sternly wrapped over its conduct of the early resolution negotiations. We may in future see the CMA conduct settlement processes more transparently, as it strives to ensure that all matters acting as inducements to enter into an ERA, if not limited to a party’s particular circumstances, are put before all parties.

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Eurotunnel: when buying assets is a merger

When is an asset acquisition a merger? As the Eurotunnel litigation shows, the answer is not clear-cut.

The background is the 2011 liquidation of the cross-channel ferry company SeaFrance. It could not be sold as a going concern, so instead there was an asset sale. Eurotunnel bought three ferries and various other assets including the SeaFrance logos, brand and trade name, computer software, websites and domain names, and IT systems.

The Enterprise Act 2002 provides (in summary) that there is a relevant merger situation if one business acquires, “the activities, or part of the activities, of [another] business.” At the risk of stating the obvious, the focus should therefore be on whether the acquiring enterprise has acquired all or part of the activities of its target.

The OFT decided that Eurotunnel’s acquisition of the SeaFrance assets was a merger and should be prohibited. That decision was the focus of the first Eurotunnel case ([2013] CAT 30, Eurotunnel I”). The CAT held that, to decide whether Eurotunnel had acquired all or part of SeaFrance’s activities, the OFT should have asked three questions: (a) whether Eurotunnel had obtained more than “bare assets”; (b) if so, whether that placed Eurotunnel in a different position than if it had simply gone into the market and acquired the assets; and (c) if so, whether this difference turned what would otherwise be an acquisition of bare assets into an acquisition of the “activities of a business”.

This three-stage approach might seem a rather elaborate way of answering the simple question of whether Eurotunnel acquired some of SeaFrance’s business activities. However, Eurotunnel I was not appealed, and so that is the approach which the OFT (now the CMA) had to adopt when the matter was remitted.

One thing which becomes apparent, on reading the second Eurotunnel case (Eurotunnel II, [2015] CAT 1), is that the three-stage approach endorsed in Eurotunnel I leads to a range of questions about such things as the nature of a “bare asset”, or what kinds of assets Eurotunnel could have purchased on the market, which add a level of complexity to the analysis which is not obvious from the statutory language.

The key issue – which is really the third of the Eurotunnel I questions – is whether what was purchased was the activities of a business. On this key issue, the CAT in Eurotunnel II held that it is “a question of fact and degree” which “calls for the exercise of judgment by the decision-maker for which there is not necessarily a clear-cut answer” (at [74]).

Applying that approach, the CAT upheld the CMA’s decision that Eurotunnel had acquired part of SeaFrance’s business activities. Of particular importance was the fact that the combination of assets purchased enabled Eurotunnel to establish ferry operations more quickly, easily, cheaply and with less risk than had they been purchased on the market. Although it did not purchase the SeaFrance assets as a going concern, the reality was that it obtained much of the benefit of so acquiring them.

One issue which may benefit from further clarification in light of Eurotunnel II is whether it is ever appropriate to treat assets with the potential to be turned into a business activity as though they are already a business activity. The CMA placed some emphasis on the fact that Eurotunnel could, and indeed did, use the acquired assets to resume the business activities previously undertaken by SeaFrance within a very short period of time following the acquisition. That may be an important point, but of course the CAT in Eurotunnel I had held that the fact that (after the acquisition) Eurotunnel resumed SeaFrance’s business activities was not by itself sufficient to make the acquisition a merger.

The line between (on the one hand) the acquisition of a business activity, and (on the other hand) the acquisition of assets with the potential to create a business activity, therefore remains open for debate.

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