In Groupe Eurotunnel S.A. v Competition Commission  CAT 30, the Competition Appeal Tribunal ("CAT") considered the extent to which natural justice required the Competition Commission (the "Commission") to disclose material considered in the course of a merger control investigation to affected parties. The CAT also provided important guidance on UK merger control jurisdiction.
- The requirements of natural justice in administrative decisionmaking are flexible and context-specific, and are not the same as those applicable to court proceedings.
- Natural justice does not require that all information relied upon by a decision maker is disclosed to an affected party, but rather that the "gist" of the matter is communicated so as to them to enable them to make a properly informed response.
- A decision-maker should ordinarily disclose the same information to all similarly affected parties (with appropriate redactions, if necessary), and the courts will closely scrutinise any inconsistent disclosure.
- Careful consideration must be given to whether acquired assets or businesses constitute an "enterprise", this being a requirement for the application of the UK merger control rules. The CAT has given guidance on this jurisdictional issue, explaining how an enterprise is to be distinguished from a purchase of bare assets.
The case concerned the review of the acquisition in July 2012 by Groupe Eurotunnel S.A ("Eurotunnel"), which operates the Channel Tunnel, of three ferries and certain other assets from SeaFrance S.A. (in liquidation), which had operated ferry services in the Channel.
Société Coopérative de Production Sea France S.A. ("SCOP”), a workers' co-operative founded by a group of former SeaFrance employees, had come to an arrangement with Eurotunnel that, if Eurotunnel's bid succeeded, SCOP would provide the labour required to operate the ferries.
On 29 October 2012, the Office of Fair Trading ("OFT") referred the acquisition to the Commission, which determined on 6 June 2013 that a relevant merger situation had been created under the Enterprise Act 2002 (the "Act"). The Commission further concluded that the merger might be expected to result in a substantial lessening of competition in the market for the supply of transport services in the Channel. The Commission prohibited Eurotunnel from operating ferry services at Dover.
Both Eurotunnel and SCOP made applications under to the CAT (which were heard together) to review this decision under section 120 of the Act, which provides that a review is based on judicial review principles. Eurotunnel and SCOP raised a number of grounds, including that the Commission lacked jurisdiction because its finding that a relevant merger situation existed was incorrect (i.e., that the acquired assets constituted an "enterprise"); and that the Commission's procedures were unfair and in breach of the rules of natural justice.
Scope of the Commission's Jurisdiction
For the UK merger control rules to apply the Act provides that it is necessary for two or more enterprises to cease to be distinct. An enterprise is defined as "the activities, or part of the activities, of a business."
The Commission had concluded that the assets acquired by Eurotunnel constituted an enterprise. Although the acquired assets had not been used commercially for a period of some seven months following the liquidation of SeaFrance, the Commission reasoned that the vessels had been well-maintained and had been capable of almost immediate commercial use, resuming operation on ferry routes on which SeaFrance had previously been active. The Commission also found that Eurotunnel had acquired SeaFrance's former employees through its agreement with SCOP, as well as the brand and goodwill of SeaFrance. Taken cumulatively, the Commission concluded that these assets constituted an enterprise.
This finding was challenged successfully by Eurotunnel. The CAT found that the Commission's jurisdictional analysis was defective. The CAT ruled that it is necessary to distinguish between the acquisition of "bare assets" and an enterprise. An enterprise should be characterised as taking assets of all forms and, by combining these assets, producing outputs for gain or reward. Difficulties arise where assets to be acquired have ceased to be used in combination, as is the case in an asset sale following liquidation. While the CAT found that liquidation is not necessarily a bar to the characterisation of business assets as an enterprise, it also ruled that the Commission's analysis focused unduly on the fact that the assets acquired by Eurotunnel were to be used, in effect, to duplicate former SeaFrance's business activities. The Commission was not entitled to conclude from this fact that the acquired assets comprised a business and therefore an enterprise for the purpose of the Act. On this basis the CAT remitted to the Commission for reconsideration the issue of UK merger control jurisdiction.
Natural Justice – what level of disclosure is required?
Eurotunnel argued that the Commission's procedures in relation to confidential information were a breach of natural justice generally, while both Eurotunnel and SCOP argued that the withholding of particular information from them was a breach of natural justice.
The essence of Eurotunnel's general argument was that the recent Supreme Court decisions in Al Rawi v The Security Service  UKSC 34 and Bank Mellat v HM Treasury (No. 2)  UKSC 39 fundamentally altered the law such that "closed procedures" were unlawful except where authorised by Parliament. In those cases, the Supreme Court had emphasised that natural justice required a party to proceedings to be given access to the evidence against them and a proper opportunity to respond. According to Eurotunnel, the Commission was therefore subject to an absolute and unqualified obligation to provide it with all information that was material to Eurotunnel's response, or, alternatively, the use of a confidentiality ring would be required in almost every case. The CAT rejected these arguments, finding that Al Rawi and Bank Mellat dealt with the question of closed procedures in civil and criminal trials, and there was no suggestion that the Supreme Court's observations in those cases were intended to apply to administrative decisions generally.
The CAT instead considered a range of earlier cases that set out the requirements of natural justice in administrative decision-making, from which it identified the following propositions:
- There is a general duty on administrative bodies to act in a procedurally fair way;
- What is "fair" is not immutable and may develop over time to adapt or take account of changing circumstances. It is a flexible and context-specific standard;
- One aspect of fairness is that a person affected by a decision is entitled to have an opportunity to make representations. That, in turn, means that they must know the case against them; and
- This right to make representation is coloured by many factors, including (i) the relevant statutory framework, if there is one (although the common law will supplement a statutory framework where necessary to ensure fairness); (ii) the nature of the investigation; and (iii) the significance of any individual item of information in the context of the investigation.
Turning to the Commission's procedures, the Act imposes duties on the Commission to consult, and also provides for certain confidential information received by the Commission to be kept confidential, with unauthorised disclosure constituting a criminal offence. Disclosure was permitted in certain circumstances, including where disclosure was for the purposes of facilitating the Commission's functions, which included consultation. In this case, the Commission produced summaries of confidential material provided to it and then asked the provider to identify any confidential material for redaction. Eurotunnel objected to some of the redactions and asked for a confidentiality ring to be deployed, but the Commission declined this request. The CAT found that there was nothing in the Commission's general approach to confidential information that could be criticised: there was no obligation on the Commission to disclose all material considered by it in reaching its decision.
In relation to Eurotunnel’s complaints about specific information that was withheld, the CAT noted that procedural fairness required the "gist" of the case to be disclosed. The level of detail necessary to satisfy this requirement was acutely context specific. For a procedure to be unfair, it was not enough that Eurotunnel might have had something material to say in relation to withheld material. Rather, it would have to show that it was unable to understand the gist of the case being made by the Commission and was unable properly to formulate its response as a result. On the facts, the CAT found that the Commission had provided Eurotunnel with an adequate gist in relation to the material complained about.
The position was rather different, however, in relation to SCOP. As a condition of the acquisition, the French court conducting SeaFrance's insolvency proceedings had imposed an "inalienability clause" that prohibited Eurotunnel from selling the ferries for a period of five years. There was a question as to whether any remedy imposed by the Commission would be compatible with this requirement. The Commission produced a Remedies Working Paper containing an analysis of whether its favoured prohibition remedy was compatible with the French Court, which it disclosed to Eurotunnel but not SCOP. The CAT considered the Commission's decision to disclose the Working Paper to Eurotunnel but not SCOP "extraordinary" given SCOP's direct interest in its content and the Commission's findings that SCOP and Eurotunnel were acting together to secure SeaFrance's assets and that Eurotunnel had material influence over SCOP.
The Commission justified non-disclosure on the basis (among others) that the Working Paper contained information commercially sensitive to Eurotunnel, and Eurotunnel had objected to its disclosure. However, the CAT found that the substance of the Working Paper could have been disclosed to SCOP without prejudicing Eurotunnel by disclosing its confidential information. There was no justification for the Commission to withhold the entirety of the Working Paper, although exactly what level of detail ought to have been disclosed would have been (in the first instance) a matter for the Commission. There had therefore been a breach of natural justice. Despite this, "not without considerable misgivings" the CAT concluded that because SCOP had been fortuitously alerted by Eurotunnel that the Commission was favouring a prohibition order and had submitted its own legal opinion in response, the Commission's procedural failing was immaterial.
The CAT has given important guidance on the application of UK merger control rules (particularly to asset acquisitions). The OFT and Commission will need to give more detailed consideration to whether assets can be said to constitute an enterprise, the judgment confirming that the definition of an enterprise is a question of law over which the OFT and Commission have no margin of appreciation. It is therefore possible that in future fewer asset acquisitions may fall for review under UK merger control rules, especially where acquisitions follow liquidation or similar proceedings that mean acquired assets have not been put to commercial use for a prolonged period.
This decision is also a reminder of the flexible and highly contextspecific nature of the requirements of natural justice in administrative decision-making. The stringent requirements of natural justice in the context of court proceedings cannot necessarily be read across to administrative decision-making. In relation to disclosure, a decision make must ensure that the gist of the matter is communicated to those affected so that they make a properly informed response, but precisely what this requires will vary from case to case. The CAT noted that "great weight" should be given to the primary decision maker's assessment as to what fairness requires. However, as this is ultimately a question of law for the courts to determine, it cannot be presumed that the courts will defer to the original decision-maker's assessment. The courts are more likely to intervene and find that a procedure is unfair where there is inconsistency in the level of information provided to different affected individuals, and special care needs to be taken in this context to ensure that any inequality is properly justified.