Court of Appeal says that CMA made 'wrong turning' but allows for remittal to same inquiry group

Court of Appeal says that CMA made ‘wrong turning’ but allows for remittal to same inquiry group

The Court of Appeal has ruled that the original CMA inquiry group in the investigation into the private healthcare market can reconsider the matter afresh.  The Court dismissed a challenge brought by HCA alleging among other matters that the remittal to the same group was unlawful.

The Court’s judgment turns on its interpretation of the legal concept of apparent bias where the issue is whether a fair-minded and informed observer would conclude that there was a real possibility that the CMA’s inquiry group is or was biased such that remittal to it was inappropriate.  The Court said no and did not consider that the remittal to the same inquiry group would cause reasonably perceived unfairness to HCA or damage public confidence in the CMA’s decision-making process.

Despite finding against HCA on the issue of apparent bias, it is of note that the CMA did not emerge with glory in this case as shown by the tone of the judgment.  While this does not obviously change the result the following paragraphs are noteworthy (emphasis added):

“It is undoubted that in the colloquial sense that I have referred to, HCA could properly have regarded the inquiry group’s conduct in keeping quiet in a sphinx-like manner at that hearing as unfair to HCA. Moreover, in my judgment, the conduct was also a breach of the CMA’s public duty of fairness, since it meant that HCA was making its submissions on a basis that the CMA hearing them knew had changed. But it is also plain that a single instance of unfairness will not automatically lead to the need to remit to a fresh decision maker. It is the starting point of the debate, not the end point.” [¶ 78]

“I also do not accept Mr Witcomb’s purported justification of his failure to tell HCA at the oral hearing about the revised IPA. In paragraph 47 of his 3rd statement, Mr Witcomb suggests that the inquiry group was going through a mechanical process in allowing HCA’s experts to repeat the points they had made in writing. But that sees the matter entirely from the CMA’s end of the telescope. Fairness is a two-way street. HCA would have been justifiably aggrieved by the later discovery that the basis of the IPA it was addressing had been changed, albeit that those changes were largely responsive to the submissions it and others had made.” [¶ 81]

“…They took one wrong turning but that does not make it reasonable to perceive they would  do the same again.” [¶97]

The CMA expects to publish its provisional findings in September.

 

HCA International Ltd v The Competition And Markets Authority [2015] EWCA Civ 492

Arbitration and cartel damages claims after Court of Justice ruling

Lawyers seem to be divided in their opinion on the implications for arbitration of a recent ruling by the Court of Justice on jurisdiction in cartel damages claims.  The Court took an expansive view of the jurisdiction of a national court to hear cartel damages claims and the judgment is considered in a previous post of mine (Court of Justice ruling on jurisdiction in cartel damages case clarifies claimants’ options).  The issue for this post is the impact of that judgment on jurisdiction clauses and specifically arbitration.

 

The first point to make is that the judgment considers jurisdiction clauses in general terms.  The Court held that the national court will be bound by a jurisdiction clause in cartel cases if the cartel victim consented to the clause with full knowledge of the cartel and the harm caused.  As I posted previously, it seems that in cartel cases a jurisdiction clause could be upheld only in rare circumstances.  The cartel victim would have needed to have known about the cartel before consenting to the provision.  Echoing this view the Court said that the national court would need to consider whether the parties “did in fact, derogate” jurisdiction and in the specific case of cartel damages.

 

I hope that national courts will take a narrow and sensible approach to the judgment as far as choice of jurisdiction and arbitration are concerned.  It is not surprising that the Court sought to rein in the scope for a prior agreement to limit the options for a cartel victim to pursue a damages claim.  However, that should not displace the up to now well understood interpretation of arbitration clauses.  The judgment is rather oblique on this point but it does not contain anything specific about limiting the scope of arbitration and in other contexts where there is a valid agreement to that effect.

 

Case C 352/13 Cartel Damage Claims (CDC) Hydrogen Peroxide SA v Akzo Nobel and others (ECLI:EU:C:2015:335)

Court of Justice ruling on jurisdiction in cartel damages case clarifies claimants’ options

The Court of Justice has ruled that victims of a cartel can claim damages against all the members of the cartel in the national court where one of the cartelists is registered.  The landmark decision is a victory for claimants and reflects the wider EU policy agenda to stimulate private enforcement of competition law in the member states.  

The case concerns a reference from the German court on the application of the Brussels I Regulation (Regulation 44/2001) in a damages action brought by victims of a cartel.  The Court held that Article 6(1) (which allows actions to be brought in the member state of one "anchor" defendant) can apply to a follow-on action for damages.  Here the case was based on a European Commission decision finding a breach of Article 101 TFEU.  The action was brought jointly against a number of defendants based in several member states who participated in the cartel in different geographies and over different periods. The Court considered that there would be a risk of irreconcilable judgements if the cases were heard separately.  The Court also held that Article 6(1) will continue to apply if the victim of the cartel subsequently withdraws its action against the anchor defendant.

 

The Court also considered the application of Article 5(3) which allows a company to be sued in the member state in which the "harmful event occurred".  This provision allows a party that claims to have suffered harm as a result of a cartel to bring a claim before the courts of the place where either the cartel was definitively concluded or one agreement in particular was concluded, which the sole causal event giving rise to the loss allegedly suffered, or where its own registered office is located.  The location must be established for each cartel victim individually. 

The Court held that the national court will be bound by a jurisdiction clause in cartel cases if the cartel victim consented to the clause with full knowledge of the cartel and the harm caused.  It is unclear how this principle will apply in practice owing to the covert nature of cartels.  It seems unlikely that a purchaser would agree to such terms in relation to a cartel known to it.

The decision should pave the way for new venues in which to bring an action for damages in cartel cases including, in principle, where the cartel meetings took place.  Determining where to file an action for cartel damages is always a question of strategy depending on which forum is likely to provide the most effective redress.  Ever since Provimi v Aventis the courts in England and Wales have recognised the concept of an anchor defendant and this is one of the factors which have contributed to the attractiveness of this jurisdiction for claimants seeking to bring a follow-on claim.  As a result proceedings can be brought in England against multiple defendants on the basis of an English anchor defendant which is a subsidiary of one of the addressees of a Commission decision, in circumstances where the subsidiary neither played a direct role in the cartel nor even had any knowledge of it.

The Court’s ruling will increase the range of potential jurisdictions in which to bring a claim by clarifying the rules on jurisdiction in cartel damages cases that are governed by Brussels I Regulation.  However, in practice and for the foreseeable future it is probable that those jurisdictions that up to now have been at the vanguard of reform – being England and Wales, Germany and the Netherlands – will continue to prove the more attractive options relative to those with less of a track record.

Case C‑352/13 Cartel Damage Claims (CDC) Hydrogen Peroxide SA v Akzo Nobel and others (ECLI:EU:C:2015:335)

Court of Appeal overrules CAT ban on Eurotunnel’s takeover of MyFerryLink

The Court of Appeal has allowed an appeal by Société Coopérative de Production SeaFrance SA (SCOP) against a ruling of the Competition Appeal Tribunal (CAT) that affirmed the CMA’s ban of the takeover by Eurotunnel of the MyFerryLink Dover ferry service.

The case concerns Eurotunnel’s acquisition of three of MyFerryLink’s ferries in 2012 from SeaFrance when the ferry operator was in liquidation.  The appeal centred on the question of whether the purchase of assets from a liquidated company constituted an enterprise for the purposes of UK merger control. 

The majority of the Court of Appeal found that the CMA’s finding that the relevant employees had transferred to the new owner was flawed.  Without this finding there could no case of an “enterprise” ceasing to be distinct for the purposes of UK merger control. 

The majority seem to emphasise the need for there to be an acquisition of a "going concern" for there to be an acquisition of an "enterprise".  However, it is not clear what the impact of the judgment will be for future cases involving the acquisition of assets from a liquidated company since they also recognise that each case will turn on its facts.  They also recognise that it is not necessary for the business to be trading at the moment of the acquisition.  Key to the judgment of the majority was the irrationality in the CMA’s finding that there was a transfer of employees from SeaFrance rather than re-employment of employees by the SCOP.  It seems that the perspective of the ordinary reasonable bystander will be instructive, as reflected in the words of Sir Collin Rimmer speaking for the majority that: 

" If one were to explain the facts to the ubiquitous reasonable man and ask him whether the employees either transferred, or 'effectively' transferred, from SeaFrance to the SCOP, or so transferred 'in effect' or as a matter of reality, I would expect him to respond testily with a robust negative. He would make the obvious point that they could not have so transferred because they had been dismissed from SeaFrance before GET was relevantly on the scene. He would say that the simple reason for their re-employment by the SCOP was referable to the combination of GET's successful bid and the various incentives provided by PSE3 for the re-employment of SeaFrance's ex-employees. He would be right. He might wonder why he was being asked such a peculiar question." 

Société Coopérative De Production Seafrance SA v Competition and Markets Authority [2015] EWCA Civ 487, judgment of 15 May 2015

The Rules of the Game - Financial Fair Play in Football

Football fans have launched litigation against the European Football governing body UEFA alleging that its “financial fair play” rules are anticompetitive because they prevent challengers from competing effectively with the more established clubs. 

The case has been brought by supporters of Paris Saint-Germain (PSG) who argue that the UEFA “break even” rule, which is designed to make firms financially sustainable, actually prevents the smaller club from buying in the talent that they need to compete with the major teams.  The rule was introduced in 2010 and prevents clubs from spending more money than they earn.  This means that they can’t use shareholder money to invest in new players.  The case takes place against a background where PSG cannot spend more than 60 million euros to buy the players it claims it needs to challenge teams like Manchester United, Real Madrid, Barcelona and other familiar names.

Football aficionados will also be aware that Barcelona apparently paid 94 million euros to buy Luis Suarez; a sum which would not be within the reach of PSG according to the financial fair play rules.  The competition issue is whether such regulations create a barrier to entry and expansion by protecting the position of the wealthiest clubs.  A further legacy effect is that many of the more established clubs built up their positions by spending amounts which would now fall foul of the financial fair play rule. 

The PSG fans claim 80,000 euros compensation for the club’s lack lustre performance and for the losses that they have incurred due to the club having to increase prices for tickets and merchandise to kick-start revenues.

If the Paris court rules in favour of PSG and other claimants who have brought similar challenges it will be interesting to see whether claimants in other countries, including the UK will bring similar actions.  UEFA remains in discussions with the European Commission over the initiative. Up to now the Commission has not raised concerns over the compatibility of financial fair play with the state aid rules, although it has not addressed head-on the application of Article 101 TFEU.

Rare dissent as the Competition Appeal Tribunal upholds the CMA’s private health care remedy

The Competition Appeal Tribunal (CAT) has dismissed an appeal by the Federation of Independent Practitioner Organisations (FIPO) against the CMA’s final report and remedies in its market investigation into private healthcare.  The CAT reached its judgment by a majority, in the face of a powerful dissenting opinion by Dermot Glynn, the panel’s economist.  What is interesting in this outcome is the vigour with which the dissenting opinion was expressed.  There have been only three previous dissents in challenges before the CAT, yet the issue in those cases was relatively self-contained relating to judicial review against Ofcom.  Here, the economist member concludes that the CMA’s decision was irrational. 

The CMA concluded in its final report that competition between private doctors is not prevented or restricted by any market power exerted by private medical insurers (PMIs).  Rather, it considered that adverse effects on competition (AEC) arose from the lack of public information on doctors’ fees.  It therefore considered that the appropriate remedy was an order to consultants to publish information on their fees and performance. 

FIPO challenged the CMA’s findings on a number of grounds, all of which were dismissed by the CAT.  The majority also considered that the view expressed in the dissenting opinion was based on an incorrect interpretation of the scope of judicial review where a review of the merits of the underlying decision is forbidden territory. 

The dissenting opinion makes interesting reading.  Glynn concluded that it was irrational for the CMA to find that fee-capping and limits on top-up fees did not necessarily restrict patients’ choice and constitute an AEC.  He commented that the CMA did not consider two aspects of consumer choice, namely where a majority of PMI patients are: (a) unlikely to have a choice between a consultant recommended by the PMI and another offering better service but requiring a top-up fee, and (b) unlikely to have a choice between different levels of service offered by the same consultant.  Rather, the CMA seems to have based its conclusion on its finding that there was no change in the aggregate number of consultants; hence no AEC as regards consumer choice.  However, Glynn took the view that the number of consultants is not necessarily correlated with the degree of patient choice in the market in terms of different pricing propositions and quality. 

Glynn could see no competition law or other justification for effectively preventing top-up fees being sought by many individual consultants whose expertise or popularity would allow this, and whose patients would be willing to pay.   He considered, also, that the mere possibility of competition below the cap ignores the operation of the market in practice:  ‘The absence of competition on price is in my opinion inescapably an AEC by comparison with a normally competitive market […] For the CMA to find no AEC on the ground that consultants “could” compete below the fee caps did not have regard to the economic realities, and was therefore irrational’ (para 87, Judgment). 

Glynn considered that the remedy was not effective because providing more information on fees does not address the lack of competition on fees:  ‘There is only limited competition through top-up fees. There is thus no real price competition between consultants so far as policyholders are concerned. On that basis, providing information about fees to policyholders will do nothing to improve the competitive outcome because there is no competition on those fees in the first place. Providing information about distorted fees cannot be expected to improve the competitive outcome’ (para 96, Judgment). 

The CAT’s judgment may be appealed to the Court of Appeal on a point of law.  

Federation of Independent Practitioner Organisations v CMA [2015] CAT 8, 29 April 2015