Gerald FitzGerald August 15 2002 Competition Authority Calls for “Strong and Independent” Hearing Officer McCann FitzGerald LLP | Competition & Antitrust - Ireland Gerald FitzGerald Competition & Antitrust Due Process Failings in Merger Control Proceedings Suggestions for Procedural Improvements Comment In the Competition Authority's recent response document to the European Commission's Green Paper on Merger Reform,(1) the authority argues forcefully that appointment by the European Commission of a "strong and independent" hearing officer is key to ensuring "greater confidence in the process generally".(2) Coming so close in advance of the authority taking primary control over Irish merger review, this is a particularly welcome position for the authority to make public. The position set out in its response not only reflects a keen understanding of the importance of an even-handed and fair merger regime for European business, but also signals the authority's willingness to respect companies' rights in merger control enforcement proceedings in Ireland. The new merger control regime provided for in the Competition Act 2002, and inaugurated on January 1 2002, is modelled on and closely follows the Merger Control Regulation.(3) Accordingly, the Competition Authority comments on the Merger Control Regulation can be read, at least on areas where the equivalent approach is taken in Irish law, as a reasonable prediction of the authority's likely attitude to Irish merger control. In particular, because the same concerns about impartiality and fairness are raised by the Irish regime, it would follow that there is equal rationale for a strong hearing officer role in the context of the Irish regime. However, the authority's response goes much further than simply advocating the appointment of a "strong" hearing officer. The authority also correctly identifies that: "[i]t is extremely difficult for a hearing officer...to be fully effective and independent if that person's career development and reporting structure lies within the Directorate General of Competition."(4) In other words, the authority favours the appointment of hearing officers from outside the control of the decision-making authority. Further, and perhaps more importantly, the authority advocates that the hearing officer should "be allowed to report on substantive as well as procedural issues".(5) Due Process Failings in Merger Control ProceedingsDue process flaws in the Merger Control Regulation continue to cause concern for business and private practitioners alike. In its response to the Green Paper, the Competition Authority rightly acknowledges these concerns by calling on the European Commission to reinforce the hearing officer's powers. Ensuring that the hearing officer has the requisite powers in the Irish context, as the authority calls on the commission to do in relation to the EU regime, would go some way towards addressing the following concerns about the fairness of both the EU and Irish procedures.Prosecutorial/investigative and decision-making roles At present, a single institution - the European Commission - is responsible for all investigation, prosecution, decision-making and enforcement activities relating to EU merger clearance.(6) A similar scheme is contemplated under Irish merger control rules. A point of particular concern on this front, at least in relation to EU practice, is that the same commission officials who draft the initial objections to a notified concentration also formulate the Directorate General of Competition's final view as to whether the concentration should be permitted. The fact that a number of different commission officials are involved is not a sufficient safeguard, since all of them are involved both as 'prosecutors' and as 'judges', and may feel unable to retreat from an entrenched position. Limited powers of the hearing officer Most commentators agree with the view espoused in the Competition Authority's response that the hearing officer, as this role is currently formulated, is not an effective procedural safeguard. Under existing rules, the hearing officer is competent to report only on procedural issues, and not on the substance or merits of a case, the legal arguments or the conclusions to be drawn from the evidence.(7) Restricted access to meaningful and timely judicial review It is also generally agreed that, in the absence of a separation between the prosecutorial/investigative and decision-making roles, a meaningful and timely judicial review is essential to ensure compliance of the review system with due process principles. Suggestions for Procedural Improvements To assist the Competition Authority's progress on this front, the following recommendations reflect the responses of specialized private practitioners to the European Commission's proposals on improving the credibility and operation of the merger review process: Different case teams within the Competition Authority should be appointed for Phase 1 and Phase 2, with ultimate responsibility for the authority's decision being held by different persons during Phase 1 and Phase 2. The order of the issuance of the statement of objections and the oral hearing should be reversed. Under existing Merger Control Regulation procedures, the statement of objections is issued in advance of the oral hearing. Private bar responses to the Green Paper argue that the commission would be in a better position to evaluate the submissions of interested parties and take such submissions into account in the statement of objections if the oral hearing occurred before the commission is required to draft the statement of objections. Instead of issuing a full statement of objections, the Competition Authority could be required to set out the main issues in the form of questions in a short brief addressed to the parties before the hearing. The statement of objections should be eliminated. In a broader perspective, some commentators question the need for a statement of objections, which obliges the case team to devote a substantial part of the Phase 2 proceedings to drafting the document and to focus on arguments opposing a transaction. Since the purpose of the statement of objections is to give the parties an opportunity to respond to the commission's objections, this could be achieved by giving the parties the possibility to comment on the draft decision instead. Some commentators argue that eliminating the statement of objections would allow the parties more time to access and review the file, and for the drafting of pre-hearing submissions. More significantly, this would allow more time for an extensive hearing and a more satisfying discussion of the views of the commission and the complaining parties. The hearing officer should produce a reasoned and publicly available opinion on both procedural and substantive issues. Any attempt to limit the hearing officer to reporting on procedural issues (eg, access to file and confidentiality of submissions) will seriously undermine the strength of that position in a manner that would be contrary to the Competition Authority's own recommendations to the commission. For similar reasons, it is imperative that the hearing officer's report be made public and that the authority be required to give reasons where it deviates from the conclusions reached in the hearing officer's report. The hearing officer should not be a former or existing official of the Competition Authority or the Department of Enterprise, Trade and Employment. Although there is no cause to question the impartiality or capability of internal authority or department staff, it would be preferable for the hearing officer (or officers) to be drawn from outside both agencies. If not, a perception problem in relation to the impartiality of the hearing officer could arise. Parties to a transaction would be likely to assume that officials from the authority would not readily challenge the actions of their colleague or former colleagues. The hearing officer's report could provide the basis of the negotiations of remedies. The hearing officer could chair negotiations and act as a mediator between the parties and the authority. This suggestion would assist transparency in the commitments procedure. CommentIt would follow from the views set out in the authority's response document that the Irish merger procedure may be expected to involve the appointment of a "strong and independent" hearing officer. Based on the authority's specific recommendations, the hearing officer must, at a minimum, be truly independent (ie, not connected in any way either with the Department of Enterprise, Trade and Employment or the Competition Authority), with competence to adjudicate on both substantive and procedural issues, and otherwise enjoy all requisite powers necessary to carry out its proper function. The above suggestions cannot be realized without significant resources dedicated to the hearing officer role. The necessary corollary to endowing the hearing officer with substantive functions would have to be provision of significant resources. At the same time, if implemented wholeheartedly, the recommendations would likely go a considerable way towards alleviating concerns about the practical operation of the new Irish system. For further information on this topic please contact Gerald FitzGerald or Philip Andrews at McCann FitzGerald by telephone (+353 1 829 0000) or by fax (+353 1 829 0010) or by email ([email protected] or [email protected]). Endnotes(1) The Competition Authority's response may be downloaded from its website at www.tca.ie/. (2) The response also opposes the Green Paper's proposal that Article 1(3) of the Merger Control Regulation be reformed to give the European Commission automatic competence for transactions notifiable in three or more member states as "too draconian at this point". In addition, it makes submissions in relation to the substantive test (the authority favours the use of the more fashionable 'substantive lessening of competition' test), and the role of "efficiencies" in evaluating mergers (the authority supports the "inherent scepticism" in the Green Paper towards claimed efficiencies). These issues are not dealt with in this update, which focuses primarily on the authority's reaction to commission proposals on procedural issues. (3) Apart from the substantive test (Ireland's new regime will use a 'substantial lessening of competition' yardstick to review mergers, while the European Commission remains beholden to the unpopular 'dominance' test), the contemplated procedure mirrors that set out in the Merger Control Regulation. Much of the language contained in Part 3 of the Competition Act 2002 appears to be copied directly from corresponding provisions in the Merger Control Regulation. In relation to the general procedure contemplated in the Competition Act, the Irish regime implements an EU-style Phase 1 preliminary investigation phase, followed by, in the case of controversial mergers, a more detailed Phase 2 procedure. However, the maximum time frame within which the authority must decide on a notified merger will be four months, as opposed to the five-month deadline currently enjoyed by the commission under the Merger Control Regulation. (4) Competition Authority response document, at p 10, paragraph 4. (5) Competition Authority response document, at p 10, paragraph 4. (6) In comparison with other merger review regimes, the Merger Control Regulation stands apart in vesting the investigative and adjudicative functions in the same institution. (7) See Decision on the terms of reference of hearing officers in certain competition proceedings, OJ 2001 L 162/21. Essentially, the hearing officer can report on whether the parties have been given a chance to speak, but not on whether enough attention has been paid to what they said.