The Competition Commission’s power to block transactions outside the UK

The judgment in Akzo Nobel NV v Competition Commission [2013] CAT 13 is an important decision on the ability of the Competition Commission (“CC”) to block transactions between companies outside of the UK. However, neither party to the appeal will be entirely happy with the Competition Appeal Tribunal’s (“CAT”) legal analysis. There must therefore be a chance that – in a future case even if not in this one – the decision will be subject to attacks from both directions.

The basic facts are that AkzoNobel indirectly holds a 49% stake in Metlac Holding, and it proposes to acquire the remaining 51%. The proposal has apparently faced no objections from competition authorities in other jurisdictions. However, the CC decided to prohibit the transaction on the basis that it would lead to a substantial lessening of competition in a segment of the metal packaging coatings market in the UK.

So far so standard. The interesting point arises from the fact that AkzoNobel is a Dutch company and Metlac Holding is Italian. Moreover, AkzoNobel does not itself directly engage in activities in the UK. Rather, it sits at the top of a complex corporate structure involving some 450 group companies. The group’s day-to-day management is organised through “Business Units” which do not correspond neatly to the formal legal structure.

Under section 86 of the Enterprise Act 2002, the CC may prevent transactions which would take place outside the UK only if the company in question is incorporated in the UK or if it carries on business in the UK.

Does AkzoNobel carry on business in the UK? The CC argued that the statutory meaning of “carrying on business in the UK” had to be interpreted in light of the broader economic aims of the Enterprise Act. It is necessary, the CC argued, to interpret the expression in a manner which gives effect to the purposes of the merger control provisions.

The CAT rejected the CC’s approach. It held that the concept of “carrying on a business” is a concept which exists “under the general principles of company law,” and that Parliament had intended to incorporate those principles into the Act (paragraphs 81-82). Applying those principles, the CAT held that there are three grounds on which a company which is not directly present in the jurisdiction might nonetheless be treated as present by reason of the presence of a subsidiary, namely:

  1. If the subsidiary has carried on the parent’s business as an agent;
  2. If there are grounds to pierce the corporate veil;
  3. If the parent and subsidiary should be treated as part of a single economic unit.

The first two grounds did not apply to this case. However, the CAT held that the third ground does apply. The key step in the analysis was that the decisions taken by the relevant Business Units should be attributed to AkzoNobel rather than to any of its subsidiaries (paragraph 114).

From the point of view of company law, the judgment represents an important decision on the scope of the “single economic unit” principle of attribution. As the CAT noted at paragraph 103, the principle has a chequered history. It is certainly arguable that if an individual employed by a subsidiary company is not acting as the parent company’s agent, and if there are no grounds to pierce the corporate veil, then the individual’s conduct cannot be attributed to the parent company. This is the obvious basis for an appeal by AkzoNobel, or indeed any other future company which finds itself in AkzoNobel’s position.

On the other hand, the CC will now be considering the implications of the CAT’s rejection of its primary argument that the meaning of “carrying on a business” should be interpreted in the light of the statutory purposes. It is over 100 years since Lord Atkinson said that whether a person is carrying on a business “is to a large extent a question of fact, to be determined in each case by its own special circumstances” (Kirkwood v Gadd [1910] AC 422, at 432). Even the word “business” has been described as an “etymological chameleon” which “suits its meaning to the context in which it is found” (Town Investments Ltd v Department of the Environment [1978] AC 359 at 383).

It is, therefore, possible to envisage challenges from all directions. This is undoubtedly an important judgment, but it would be a brave lawyer who advised their client that it will be the final say on the matter.

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