Anyone for another round? The Court of Appeal’s nuanced approach to the duty of “sincere cooperation”.

The duty of “sincere cooperation” set out in Article 4(3) TEU requires Member States to take appropriate measures to “ensure fulfillment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union” as well as to “refrain from any measure which could jeopardise the attainment of the Union’s objectives“. When and in what way are Member State authorities required to act – or desist from acting – in order to comply with this duty?

This was the key issue in two cases decided this year regarding EU and national merger control (Ryanair Plc v OFT [2012] EWCA Civ 643 and Ryanair Plc v Competition Commission [2012] EWCA Civ 1632).

Merger jurisdiction is exclusive to the European Commission (“EC”) where the Merger Regulation applies (Article 21) and exclusive to national authorities where it does not. However, the UK’s Enterprise Act 2002 (“EA”) has a slightly different scope to the Regulation as it extends to the acquisition of a “material” (s.26(3)) rather than a “decisive” influence in an enterprise (Article 3(2) Regulation 139/2004) as well as to a minority shareholding, i.e. where the person does not have a “controlling interest” (s.26(3)).

In the first case, Ryanair made a public bid to acquire the 80.8% of Aer Lingus’ shares which it did not own. The bid was notified to the EC which investigated and concluded on 27 June 2007 that the proposed concentration was incompatible with the internal market. Ryanair sought annulment of the Prohibition Decision by the General Court but was unsuccessful following a judgment of 6 July 2010. Aer Lingus had sought interim measures from the EC to require Ryanair to divest itself of the shares it had gained in the interim, but the EC considered that it was not competent to grant such measures and the General Court rejected an appeal against that decision. The OFT, thereafter, informed the airline of its intention to investigate whether a merger situation under the EA had arisen from the proposed bid. Ryanair objected on the basis that the OFT was out of time.

The Chancellor of the High Court (Sir Andrew Morritt) held that the OFT had been obliged to await the end of the EU appeal process before acting as it would otherwise have risked acting inconsistently with Merger Regulation’s processes (at [43]). He held that “the duty of sincere cooperation [goes] beyond avoiding inconsistent decisions and extends to overlapping jurisdictions” ([38]).

What then? On 15 June 2012, the OFT referred Ryanair’s now expanded 29.82% minority shareholding in Aer Lingus to the Competition Commission pursuant to s.22 EA. On 19 June 2012, Ryanair announced a second public bid for the entirety of Aer Lingus’ shares and invited the Competition Commission to suspend its investigation while the EC investigated the new bid. The Competition Commission pressed ahead. Ryanair now relied upon the previous judgment to argue that the UK risked breaching article 4(3). In other words, it argued that the principle which had prevented the OFT from proceeding with the investigation should now prevent the Competition Commission from doing so.

The Court of Appeal rejected this argument. It relied on important distinctions from the earlier case (at [62]). In particular, in the OFT case, Ryanair’s entire shareholding – including the minority stake – was treated as one “concentration” for the purposes of the Merger Regulation. Therefore, if either of the appeals to the EU courts in that case had been successful, the EC would have had exclusive jurisdiction within the meaning of Article 21 of the Merger Regulation. The Court thus identified “a possible contingent infringement of Article 21(3)”, and it followed that the duty of sincere cooperation required the OFT to refrain from taking any steps in its investigation.

In the Competition Commission case, in contrast, because the minority stake was acquired much earlier, it was not part of the same “concentration” as that to be considered by the EC. There would therefore be no chance that the EC’s decision (or any appeal from it) would lead to a decision inconsistent with the Competition Commission’s ongoing investigation. There was therefore no risk of a “contingent infringement” of Article 21 and the duty of sincere cooperation did not require the Competition Commission to stay its investigation.

This is a somewhat technical distinction which could cause difficulty in practice. Indeed, even in the Competition Commission case it was possible to imagine ways in which the decisions of the two authorities could conflict – most obviously, if the EC were to allow Ryanair to acquire a controlling stake whilst the Competition Commission ordered it to divest itself of its minority stake. The Court of Appeal acknowledged at [60] that, in order to avoid such conflicts, there may come a point at which the duty of sincere cooperation would require the Competition Commission to stay its proceedings.

This does not make it any easier for parties to determine at what point merger investigations might, or must, be stayed. In contrast, it preserves a measure of flexibility for national authorities when considering how exactly to act compatibly with their EU obligations where they are not dealing with identical issues to an EC investigation. This reflects the general approach to the duty of sincere cooperation, as in the case of national court proceedings (see e.g. National Grid Electricity Transmission plc v ABB Ltd [2009] EWHC 1326). Since no EU institution was able to take steps in relation to the minority shares, allowing a national authority to do so may at least ensure that there is no regulatory gap in merger regulation.