Author Archives: Tristan Jones

About Tristan Jones

Barrister at Blackstone Chambers.

Can several wrongs make a right? Gallaher v CMA in the Court of Appeal

When a public body makes a mistake in its treatment of one person, can fairness require it to treat other people in the same way – even if that means amplifying the effects of the mistake?

According to the Court of Appeal in the latest instalment of the tobacco litigation, the answer is yes.  The history of the case is well-known.  The Office of Fair Trading’s decision, that various manufacturers and retailers had committed an infringement in the setting of tobacco prices, collapsed on appeal to the CAT in 2011.  Gallaher and Somerfield, who had entered into early resolution agreements (“ERAs”) with the OFT and therefore decided not to appeal the infringement decision, then sought to appeal out of time.  The Court of Appeal rejected their attempt in 2014, emphasising the importance of finality and legal certainty (see my blog here).

Undeterred, Gallaher and Somerfield pressed on with a different aspect of their case.  They had discovered that another company, TM Retail, had been assured by the OFT when it entered into its ERA in 2008 that, in the event that any other party succeeded on appeal, TM Retail would have the benefit of that appeal.  The OFT’s assurance to TM Retail was based on a mistaken view of the law, since a successful appeal by one addressee of a decision does not normally let non-appellants off the hook.  However, following the successful CAT appeal in 2011, the OFT decided to honour its assurance to TM Retail.  TM Retail’s penalty was repaid (although for reasons which need not detain us the OFT has refrained from calling it a ‘repayment’).  But the OFT also decided that, given that it had not given any similar assurance to Gallaher or Somerfield, it would not repay their penalties.

Gallaher and Somerfield challenged the OFT’s decision on fairness grounds.  The Court of Appeal has now held that the OFT, now the Competition and Markets Authority, is obliged by principles of fairness to treat Gallaher and Somerfield in the same way as it treated TM Retail.  That will mean repaying their penalties, at a cost of something north of £50 million.

The Court of Appeal’s decision recognises that the requirements of fairness will depend on all the circumstances of the case.  The decision is therefore based very heavily on the particular facts of this case.  Of particular importance was the fact that all ERA parties were told that they would be treated equally.  They therefore had a strong expectation of equal treatment.

Nonetheless, the case raises some important questions.

Firstly: what is the significance of detrimental reliance in an equal treatment case?  In cases concerning legitimate expectations, itself a branch of the law of fairness, it is generally the case that a party will not succeed unless he shows that he has suffered some detriment in reliance on the expectation in question.

In this case, Gallaher and Somerfield could not say that the OFT’s assurance to TM Retail was what made them decide not to appeal against the infringement decision.  They didn’t know about the assurance when they chose not to appeal.  The Court of Appeal answers this point by remarking at [44] that:

“the only reason why the appellants could not have claimed that they relied on assurances of the type given to TM Retail was because such assurances had not been given to them …”

But the question is surely not whether Gallaher and Somerfield could “claim” to have relied on assurances: it is whether or not they did in fact rely on such assurances.  They did not.  The absence of such a factor must be relevant to an assessment of what is fair in all the circumstances.

Secondly: what is the significance of the fact that assuring equal treatment will end up costing the public purse a huge amount of money?

The Court does not go into this question in any detail.  It rejects, as a statement of general principle, the contention endorsed by the High Court that a mistake should not be replicated where public funds are concerned.  Instead all depends on the circumstances.  But the Court’s discussion of the circumstances does not consider the significance of the impact on the public purse.

Of course, the point cuts both ways because the heavy impact on the public purse if the penalties are repaid is the mirror-image of the impact of the unequal treatment on Gallaher and Somerfield if the penalties are not repaid.  There is, however, an important question of principle as to how to balance the desirability of ensuring equal treatment, on the one hand, against the unattractiveness of requiring public bodies to magnify their errors at great expense, on the other.  The Court of Appeal explains in detail why the former consideration should weigh heavily in favour of repayment, but it remains unclear whether, or in what circumstances, such factors may be counter-balanced by public expense considerations.

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Economic complexity: CAT vs High Court

One of the advantages of the Competition Appeal Tribunal is said to be the fact that its three-member panel typically includes an economist. But is that really such a big advantage over the High Court?

The question is particularly topical in light of a couple of recent trends. On the one hand, recent legislative developments have increased the jurisdictional overlap between the CAT and the High Court, so that litigants more frequently face a choice between the two. In making that choice, the CAT’s economic expertise can exert a strong pull. Claimants might plead their case narrowly in order to come within its limited powers. Or, parties might seek to transfer their case across to the CAT from the High Court (not always successfully – see here).

On the other hand, there have been several indications that more could be done to make economic issues accessible to High Court Judges. A high-profile example is the recent Streetmap case, in which the experts gave evidence concurrently in a “hot tub” arrangement. Another example comes from the MasterCard litigation, in which Mr Justice Flaux recently asked whether it might help for the trial judge to be assisted by an expert economist appointed as an Assessor under CPR 35.15. I understand that the suggestion has not been taken any further in that particular case, but the general idea of using Assessors was also endorsed by another judge at a recent lecture on competition litigation.

Another tool which could be used much more widely in competition cases is the use of ‘teach-ins’ at which an independent expert spends time (perhaps a couple of days) educating the judge on the basic economic concepts relevant to the case. Care obviously needs to be taken to ensure that the teacher does not take a stance on controversial issues in the case. But if it is done well, as a recent patent case shows, it can be an invaluable way of helping a judge to prepare for a complex trial.

Of course, all of these techniques could be used in the CAT as well as in the High Court. It is perhaps too easy for parties in the CAT to assume that, just because there is an economist on the Panel, there is no need to do any more to make the economic issues accessible. The economist can only do so much, and the role does not include providing formal training to the other Panellists.

Against that background, it is worth revisiting the advantages of having an economist on the CAT Panel. The first is that he/she is fully involved in the hearing, and able to ask questions of the parties’ expert witnesses. Anyone who appears regularly in the CAT will have seen cases in which it is the economist Panellist who manages to cut through the arguments and identify the central point.

But there is no reason in principle why that advantage could not be replicated in the High Court. An Assessor could be appointed with the function of (among other things) asking question of the expert witnesses.  In practice this would be an unusual request, and of course the parties would need to foot the bill.  But there is no reason in principle why it could not be done.

The other main benefit of having an economist on the Panel is that he/she participates fully in the decision making. He works collaboratively, in private, with the other Panellists as they reach their decision. In contrast, if an Assessor were appointed in the High Court to help the judge reach a decision on the economic issues in the case, his advice would need to be given in public so that the parties could comment on it (see the Court of Appeal’s guidance at paragraphs 18-21 of this patent case). Such a process would be much more cumbersome than that in the CAT, but it would at least ensure that the parties could engage fully with the thinking of every economist involved in the case.

I do not mean to suggest that parties in economically complex cases should flock to the High Court rather than the CAT. But it is worth thinking hard before tailoring a case to fit within the CAT’s limited powers, or getting into a procedural fight over the forum. With a bit of imagination, and provided the parties are willing to pay for it, much can be done to assist the judge in the High Court to match many of the advantages available as a matter of course in the CAT.

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Filed under Damages, Economics, Procedure

Asset acquisitions and mergers: Eurotunnel in the Supreme Court

The Supreme Court’s recent decision in Eurotunnel II ([2015] UKHL 75) brings some much-needed clarity to what was becoming a rather opaque corner of the UK merger regime. It also contains statements of general principle which are bound to make it one of the most frequently-cited merger cases.

The case concerns the circumstances in which an asset acquisition may constitute a merger. SeaFrance, a cross-channel ferry operator, had gone into liquidation and could not be sold as a going concern. Eurotunnel bought three ferries and various other assets. The OFT (now the CMA) investigated.

In deciding whether the acquisition was a merger, the essential question under the Enterprise Act was whether Eurotunnel had acquired “the activities, or part of the activities” of SeaFrance.

I complained in one of my earlier blogs about how the procedural history of the case was causing problems. The parties had apparently agreed that the underlying question of law had been decided by the Competition Appeal Tribunal in the first Eurotunnel case, Eurotunnel I [2013] CAT 30, and that the only issue arising in Eurotunnel II was a rationality challenge to the CMA’s decision. The Court of Appeal accepted the limited scope of the challenge but could not resist suggesting that Eurotunnel I might have been wrongly decided.

Fortunately (and not surprisingly), the Supreme Court did not limit itself to the rationality challenge. It addressed the underlying question of law head-on, endorsing the CAT’s approach in Eurotunnel I.

In deciding whether an asset acquisition is a merger, Lord Sumption held (with the agreement of the rest of the Court), it is necessary to ask whether the acquiring entity has obtained more than it would have obtained by going out into the market and purchasing ‘bare assets’. If so, one must go on to ask whether the ‘extra’ which it has obtained is attributable to the fact that the assets were previously employed in combination in the target’s activities (para 39). Or:

“Put crudely, it depends on whether at the time of the acquisition one can still say that economically the whole is greater than the sum of its parts.” (para 40)

The word “economically” should be emphasised. The main reason why Lord Sumption adopted this expansive approach to the question of whether an asset acquisition is a merger was because of his concern to give effect to the purpose of the legislation. See in particular para 31, which contains the first statement of general principle that is bound to be relied on in later cases:

“The first point to be made is that in applying a scheme of economic regulation of this kind, the Authority is necessarily concerned with the economic substance of relevant transactions and not just with their legal form.”

Seen in this light, the fact that the target has ceased its operations will be a relevant factor in deciding whether there is a merger, but it will not necessarily be decisive.

As to the rationality challenge, the Supreme Court held that the CMA’s decision was rational. It also took the opportunity to emphasise – in the second passage likely to become familiar to competition lawyers – the respect which should be paid to the CMA’s expert judgment in merger cases (see para 44):

“This court has recently emphasised the caution which is required before an appellate court can be justified in overturning the economic judgments of an expert tribunal such as the Authority and the CAT: British Telecommunications Plc v Telefónica and others [2014] UKSC 42; [2014] Bus LR 765; [2014] 4 All ER 907 at paras 46, 51. This is a particularly important consideration in merger cases, where even with expedited hearings successive appeals are a source of additional uncertainty and delay which is liable to unsettle markets and damage the prospects of the businesses involved. Concepts such as the economic continuity between the businesses carried on by successive firms call for difficult and complex evaluations of a wide range of factors. They are particularly sensitive to the relative weight which the tribunal of fact attaches to them. Such questions cannot usually be reduced to simple points of principle capable of analysis in purely legal or formal terms.”

There is bound to be further debate about the precise point at which the sale of assets risks becoming the sale of part of a business’s activities, bringing the transaction within the Enterprise Act. However, that debate will now take place within the much clearer boundaries established by the Supreme Court.

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Standalone claims in the CAT: bypassing the transitional rules

We have written before about the problems inherent in the transitional provisions of the new Consumer Rights Act 2015 (see Tom de la Mare QC’s blog here). A recent decision from Mr Justice Barling in the Mastercard litigation places a (small) sticking plaster over some of the difficulties.

One problem is that the transitional provisions appear to severely limit claimants’ ability to bring stand-alone claims in the Competition Appeal Tribunal (“CAT”) – in theory you can bring such claims, but you may face much less favourable limitation rules than you would have faced had you started in the High Court.  It is difficult to see this as anything other than a drafting error, since part of the purpose of the new statutory regime was to do away with the oddity of having a specialist competition tribunal unable to hear such claims.

Barling J has found a partial solution to this problem. In Sainsbury Supermarkets Ltd v MasterCard Incorporated [2015] EWHC 3472 (Ch) (see here), he decided that Sainsbury’s standalone claim, issued in the High Court, could be transferred to the CAT – and that, importantly, such a transfer would preserve the limitation position in the High Court.

The Judge held that it did not matter whether or not the claim could have been started in the CAT (and he did not decide that particular issue). What mattered was that it could be transferred there.

The ability to transfer standalone claims to the CAT has obvious advantages for those cases which would benefit from the CAT’s economic and industry expertise. It is somewhat clunky for claimants to have to issue in the High Court (and incur fees there) only to then transfer to the CAT, but it is better than nothing.

It also means that claimants who wish to take advantage of the different limitation provisions in the High Court (in general, better for standalone claims) and in the CAT (in general, better for follow-on) now have the option of starting claims in both jurisdictions and then seeking to consolidate them in the CAT.

Of course, Barling J’s decision does nothing to fix the other problems highlighted in Tom’s blog. Most obviously, it does nothing for standalone class actions, which cannot be started in the High Court and still face the usual problems in the CAT. It is, however, a helpful ‘workaround’ which will go some way towards mitigating the problems caused by the transitional arrangements.

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Filed under Damages, Procedure

Asset acquisitions revisited

Earlier this year, I suggested that the law on when an asset acquisition might amount to a merger was somewhat opaque. The Court of Appeal’s decision in Eurotunnel II [2015] EWCA Civ 487 has brought some additional clarity, although the messy procedural history of that case has caused its own problems.

A quick re-cap on the background. Cross-channel ferry company SeaFrance went into liquidation in 2011. It could not be sold as a going concern, and there was instead an asset sale. Eurotunnel bought three ferries and various other assets.

The OFT (now the CMA) decided to investigate whether the acquisition was a merger. The basic question under the Enterprise Act was whether Eurotunnel had acquired “the activities, or part of the activities” of SeaFrance.

At the risk of stating the obvious, an asset is not an activity. However, there were some features of the asset sale – including the fact that the vessels were maintained ready to sail at short notice, and that a deal had been done to incentivize the re-recruitment of SeaFrance’s staff by any new owner – which the OFT considered meant that the relevant “activities” had been acquired. Continue reading

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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. Continue reading

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Filed under Agreements, Policy

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. Continue reading

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Filed under Agreements, Damages, Policy