Is judicial review an effective remedy for merger prohibitions? Nigel Parr 11 November 2005

1. Is judicial review an effective remedy for merger prohibitions?Nigel Parr11 November 2005

2. Is judicial review an effective remedy for merger prohibitions? • Focus • on the UK • comparison of the FTA and EA regimes and statutory framework • Appealing OFT clearance decisions • Appealing CC prohibition decisions • standard of proof • likelihood of success • effect on OFT and CC investigations

3. The Statutory Framework • FTA 1973 • OFT advised the Secretary of State who had a discretion to clear or refer • CC under a duty to investigate and report and to take into account a range of specified matters • EA 2002 • OFT under a duty to make a reference where [there is a reasonable likelihood] of an SLC • CC under a duty to decide whether a merger may be expected to result in an SLC

4. The approach under the Fair Trading Act • Application for judicial review to the High Court • grounds for review traditionally considered under three heads: illegality, procedural impropriety, irrationality • very low success rate re CC reports: Interbrew v Competition Commission • no challenges to FTA clearance or reference decisions (S of S had a discretion to clear or refer) • focus of courts on "good public administration" which required "decisiveness and finality": R v MMC exp Argyll

5. The approach under the Fair Trading Act • review and weighing of the evidence was for the CC: "it was a matter for the MMC to decide what weight, if any, or what reliance they should place on the arguments and method of comparison contended for by Matthew Brown". R v MMC exp Matthew Brown plc • "… it would be most unfortunate if the Commission were to be put in peril of exercises in objectivity by this court …" Elders IXL Ltd

6. The approach under the Enterprise Act • S120(1): any person aggrieved by a decision of the OFT, CC, SoS or Ofcom in connection with a reference or possible reference may apply to the CAT for a review of that decision. • S120(4): in determining such an application the CAT shall apply the same principles as would be applied by a court on an application for judicial review.

7. Appealing OFT clearance decisions • IBA Health (2003) – CAT quashed OFT's decision not to refer iSOFT's acquisition of Torex to the CC "we are not satisfied that the OFT applied the right test, or that the OFT reached a conclusion that was reasonably open to them. We are not satisfied that the facts are sufficiently found in the decision or that all material considerations have been taken into account. We are unable to verify whether there was material on which the OFT could reasonably base important findings in the decision" (CAT)

8. Appealing OFT clearance decisions • IBA Health, Court of Appeal: "a decision such as the present should in our view clearly set out the OFT's reasoning on issues such as these, together with sufficient material to show that the conclusion can be supported and that the matter has been properly investigated. The Tribunal has been unable to satisfy itself that such is the case here." • stressed need to apply the ordinary principles of JR particularly as regards "unreasonableness" (Vice Chancellor) • observed that the legal concept of reasonableness was relatively flexible (Carnwath LJ)

9. Appealing OFT clearance decisions • Unichem v OFT (2005) • CAT conducted a thorough review of the OFT's analysis • concluded that in purporting to make findings of primary fact about the logistics of Unichem's distribution system its success and service levels on the basis of information supplied largely by the merging parties, without checking facts or discussing inferences with Unichem, where those facts were disputed by Unichem, meant there was no adequate factual basis for the decision.

10. Appealing CC Prohibition decisions • No decisions of the CAT • A recent application by Somerfield (September 2005) • Key grounds of challenge • perverse approach to SLC based on an abstract"illustrative price rise" model • Application amended to focus on remedies

11. Standard of proof • ECJ in Kali & Salz: "a significantly cogent and consistent body of evidence" • "Not only must the Community courts, inter alia, establish whether the evidence relied upon is factually accurate, reliable and consistent but also whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of substantiating the conclusions drawn from it. Such a review is all the more necessary in the case of a prospective analysis required when examining a planned merger with conglomerate effect." (Tetra Laval)

12. Standard of proof • Where: "the chains of cause and effect are dimly discernible, uncertain and difficult to establish … the quality of the evidence produced by the Commission in order to establish that it is necessary to adopt a decision declaring the concentration incompatible with the common market is particularly important, since that evidence must support the Commission's conclusion that, if such a decision were not adopted, the economic development envisaged by it would be plausible." (Tetra Laval)

13. Standard of proof • The counter-factual • "… the burden of proving the case in this respect was on the OFT, whereas again its conclusion was founded upon speculation as to what might have happened in a world that never was." (Racecourse Association v OFT, 2005)

14. Likelihood of success of challenging a CC Prohibition decision • Irrationality: standard of proof requirement suggests greater prospect of success in Tetra type situation • the counterfactual: should be based on fact not speculation • Procedural impropriety: no access to CC's file and "varied redactions"

15. Effect on OFT and CC investigations • OFT • greater emphasis on factual analysis, internal documents, and consultation • longer time frames, clock stopping • higher costs • reduced availability of informal advice • CC • thorough • longer than FTA (LSE 7 months) • more costly than FTA inquiries • impact of review?