This client briefing covers:
- New Competition Law for Guernsey in force on 1 August 2012
- Jersey and Guernsey now both regulate the abuse of a dominant position, anti-competitive arrangements, and mergers and acquisitions
- Key differences between the islands' competition laws
- Overall, a pan-Channel Island approach to regulation
The Competition (Guernsey) Ordinance, 2012 came into effect on 1 August 2012, 7 years after Jersey's competition law, the Competition (Jersey) Law 2005, was introduced.
The Guernsey law is modelled largely on the Jersey legislation and is designed to facilitate a common approach to implementation.
However, Guernsey has taken note of some of the more contentious aspects of the Jersey law and has chosen to adopt a different approach on some issues.
The competition law is administered and enforced by the Jersey Competition Regulatory Authority (JCRA) in Jersey and by the Guernsey Competition and Regulatory Authority (GCRA) in Guernsey.
Although Jersey and Guernsey remain separate markets for competition law purposes, the JCRA and the GCRA share a common board and co-operate as the Channel Islands Competition and Regulatory Authorities (CICRA) to promote a pan-Channel Island approach to competition regulation.
Three pillars of competition law
Both Jersey and Guernsey now have laws governing the three central elements of competition regulation, namely the abuse of a dominant position, anticompetitive arrangements, and merger control.
- Abuse of a dominant position
Conduct which constitutes the abuse of a dominant position within the islands is prohibited. Examples of such conduct include:
- unfair purchase or selling prices (e.g. price discrimination, excessive prices or predatory pricing)
- limiting production, markets or technical development to the prejudice of consumers
- applying dissimilar conditions to equivalent transactions with other trading parties thereby placing them at a competitive disadvantage
- Anti-competitive arrangements
Agreements between undertakings which have the object or effect of preventing competition in the islands are also prohibited. Examples of such arrangements include:
- price fixing
- market sharing
- in certain circumstances, exclusive supply and distribution agreements
There is a 6 month grace / cure period for existing anti-competitive arrangements in Guernsey (i.e. no action will be taken by the GCRA in respect of any such arrangements until February 2013 at the earliest).
In limited circumstances, the Jersey or Guernsey regulator may grant an exemption from this prohibition for a particular arrangement. In order to qualify for an exemption, the arrangement must, amongst other things:
- improve the production or distribution of goods or services or promote technical or economic progress in such production or distribution;
- allow consumers a fair share of any resulting benefit; and
- not afford the ability to / possibility of eliminating competition in respect of a substantial part of the goods or services / market in question.
Experience in Jersey suggests that the granting of such exemptions is rare.
- Merger control
The approval of the regulator is required before certain mergers and acquisitions can be implemented. The types of transactions that are most commonly caught by this are the acquisition of shares (and hence control) in a company, the acquisition of a business, and joint ventures.
At present, Jersey's merger control thresholds are based on the transacting parties' share of supply or purchase of goods or services to or from people in Jersey. Broadly speaking, the prior approval of the JCRA is required in the following circumstances:
- Horizontal mergers: where the transaction would create an undertaking with a share of 25% or more of the supply or purchase of goods or services in Jersey, or enhance such a share.
- Vertical mergers: if one party involved in the transaction has an existing share of supply or purchase of goods or services in Jersey of 25% or more and another party involved in the transaction is active upstream or downstream in the same supply chain in Jersey or elsewhere.
- Conglomerate mergers: subject to certain exceptions, where one or more parties has an existing share of supply or purchase of goods or services in Jersey of 40% or more.
Notably, Guernsey has introduced different merger control thresholds from those in Jersey. This is the area in which the competition laws of the Channel Islands differ most markedly.
Instead of merger control thresholds based on the parties' share of supply, a merger or acquisition will require the prior approval of the Guernsey regulator if:
- the combined applicable turnover of the undertakings involved in the transaction arising in the Channel Islands exceeds £5 million; and
- two or more of the undertakings involved in the transaction each has an applicable turnover arising in Guernsey which exceeds £2 million.
Generally speaking, for the purposes of this test, the place in which turnover arises is determined by the location of the customer to whom the products are sold or the services provided. In most cases, therefore, it is the turnover derived from sales of products and services to Channel Island customers that is relevant to calculating whether the thresholds are exceeded.
The undertakings involved are the target and the purchaser (in a typical acquisition situation), the parties to a joint venture including the joint venture vehicle, and the merging parties to a merger. The turnover of an undertaking also includes the turnover of those entities considered by the legislation to be connected with it, excluding turnover derived from intra-group sales.
Turnover is calculated by reference to an undertaking's preceding business year or, if no figures are available for that year, the one before it. As a general rule, only amounts derived from the sale of products and services in the course of an undertaking's ordinary activities are taken into account, net of directly related taxes.
Special rules apply to insurance businesses and also to credit and financial institutions. As regards the latter, turnover is calculated by reference to the place where specific income items are received by the institution or a branch or division of it, rather than where the underlying customers are located. Whilst it is envisaged that this may result in many credit and financial institutions exceeding the turnover thresholds noted above, a separate preliminary review process has been implemented which is designed to weed out relevant transactions warranting the GCRA's further consideration under the normal review process.
Benefits of the turnover test
Some of the perceived benefits of Guernsey's turnover test (as compared to the share of supply test currently in place in Jersey) include the following:
- the turnover test is more objective, and is likely to make it easier for companies operating in both islands to know whether they need approval for a merger or acquisition
- it is anticipated that the GCRA will have more time to focus on local matters because there will be fewer large international mergers requiring approval. This is in contrast to Jersey's experience of the share of supply test, which has caught many international deals (such as Kraft's acquisition of Cadbury) that in practice are likely to have very little effect on the Jersey market.
Subject to the approval of the States of Jersey, Jersey intends to replace its share of supply test with the same turnover test later in 2012 or early in 2013.
Other Key differences between Jersey and Guernsey competition law
Although the competition laws of the Channel Islands are similar, there are certain key differences in addition to the different merger control thresholds outlined above. Some of these are summarised in the table below.
Click here to view table.
Pan-Channel Island approach
Despite these differences, a number of important factors underpin CICRA's stated aim of developing a consistent pan-Channel Island approach to competition law administration and enforcement:
- The JCRA and the GCRA share a Chief Executive (Andrew Riseley) and board of directors
- The Memorandum of Understanding signed in December 2010 between the two authorities aims to facilitate a closer working relationship and sharing of information between them
- CICRA's website is designed to improve access to information on competition and related regulatory issues in the Channel Islands
With this aim in mind, and as CICRA turns its attention increasingly towards the local markets, it is reasonable to expect the spotlight to fall, in particular, on how pan-Channel Island businesses with recognised influence in their spheres operate in the Jersey and Guernsey markets.
With Guernsey's competition law now in force and the Jersey legislation firmly bedded in, there is no time like the present for Channel Island businesses, particularly but not exclusively those active in the sectors identified by CICRA as the subject of its market reviews (most recently, food, tobacco, gas and electricity in Jersey) to assess:
- the actual and potential competitive effects of their contracts, prices, policies and procedures on Channel Island consumers
- as part of this assessment, any arrangements they may have with competitors, and the terms of their distribution, supply and other agreements, for any provisions that may be considered anti-competitive
- their Channel Islands turnover and (in Jersey) their share of supply in light of the current merger control thresholds