Société Cooperative de Production SeaFrance S.A. v CMA and Another

16 09 2015

The Supreme Court’s website explains that it has granted permission for the Competition and Markets Authority (CMA) to appeal the Court of Appeal of England and Wales’ decision Société Coopérative De Production Seafrance S.A. v Competition and Markets Authority & Anor [2015] EWCA Civ 487 (15 May 2015) in a case relating to the acquisition by Eurotunnel of three out of SeaFrance’s four ships, together with certain business assets. The Supreme Court’s website explains that the legal question relates to whether or not Eurotunnel acquired an “enterprise” through the transaction, and therefore whether or not the CMA had the power to require Eurotunnel to take remedial action. The case has been listed to be heard before five Justices on 14 and 15 October – one of the first cases to be heard by the Supreme Court in the new legal year. Additionally, an advocate to the court has been appointed to assist the Justices in examining some of the legal issues raised by CMA’s appeal, in the absence from the proceedings of representatives of the liquidators of Societe Cooperative De Production SeaFrance.

The Court of Appeal, held that the CMA’s decision that the activities of a liquidated company had been brought under the control of a competitor such as to found a relevant merger situation under the Enterprise Act 2002, section 22(1) and section 129(1) was fundamentally flawed. It had held that the company’s former employees had effectively transferred to the competitor, but the liquidator’s dismissal of the employees had rendered irreversible the cessation of the company’s activities. Arden LJ (dissenting) concluded for the that it had not shown that the CMA came to a decision which was irrational or wrong in law. The CMA could rationally take the view that, even though SeaFrance has been placed in liquidation, and even though its employees have been declared redundant, Groupe Eurotunnel SA/Société Coopérative de Production SeaFrance S.A. acquired its business. The CMA made some errors in the way it described the events but the conclusion which it reached was inevitable. Her Ladyship would have dismissed the appeal. She said:

124. The three errors share a common characteristic. They occur in sentences in which the CMA tries to sum up the facts or draw inferences. Mr Harris submits that all the errors were insubstantial. Moreover, the underlying facts had been set out by the CMA in great detail earlier in the Remittal Report. Mr Beard contends that it was wholly incorrect to say that the employees’ contracts had not been terminated with no thought as to the future or that the SCOP safeguarded their position throughout. I see the literal force of Mr Beard’s point but the fact is that the CMA set out the facts in detail earlier in its report. In my judgment it is inconceivable that the CMA intended these passages to do other than represent the facts which they had found and set out in the Remittal Report. In those circumstances I consider that the errors were peripheral to the CMA’s reasoning process. In my judgment, the conclusion of the CMA would inevitably have been the same if the errors were corrected since, as I have said, it had identified the correct facts earlier in the Remittal Report and those facts are not challenged.

Tomlinson LJJ and Sir Colin Rimer would have allowed the appeal. Tomlinson LJ said:

129. I have had the advantage of reading in draft before preparing my own the judgments prepared by Arden LJ and Sir Colin Rimer. I agree with Sir Colin Rimer that the appeal should be allowed. As the court is divided and as we are differing from the CAT I add some observations of my own, but they should be regarded as supplementary to the judgment of Sir Colin Rimer, with which I agree.

134. In agreement with Sir Colin Rimer, I do not find the reasons given by the CMA either cogent or compelling, and like him I conclude that the decision of the CMA falls outside the ambit of reasonable decision-making.

Sir Colin Rimer said:

144. I have had the advantage of reading Arden LJ’s comprehensive judgment in draft. I have, however, come to a different conclusion as to the disposition of the appeal. I would allow it.

Commenting on the Court of Appeal’s judgment, in his case note, George Peretz QC explains that:

  • The concept of an “enterprise” has been at the heart of the UK’s idiosyncratic system of merger control from the passage of the Fair Trading Act in 1973 through to the present regime set out in the Enterprise Act 2002. A consistent feature of the regime has been that it catches a transaction only if it involves two (or more) “enterprises” ceasing to be distinct. Leaving aside for present purposes the complexities of the notion of “ceasing to be distinct”, when a purchaser buys a collection of assets previously used to carry on a business, has it bought just a collection of assets, or has it bought an “enterprise”? If it has bought only assets, but not an “enterprise”, then the transaction lies outside the scope of UK merger control. So the question of what “enterprise” means is, often, a critical one on which turns the regulation of very major transactions.
  • The effect of the Court of Appeal’s judgment is to throw considerable doubt over the correctness of the AAH approach as developed in CAT1. It is difficult to put it higher than that, because the majority were careful to note that their reservations about CAT1 were not the subject of argument, and so were obiter. But as I have argued above, the majority’s reluctance to accept that (save in exceptional circumstances or in the context of a deliberate attempt to avoid merger control) there could be a continuing enterprise after a substantial gap of the kind at issue is in distinct tension with the approach in CAT1.
  • The majority’s judgment also contains passages that will in future be heavily relied on by applicants for review by the CAT of decisions as to jurisdiction. It expressly rejected an expansive approach to jurisdiction, and called for special care in scrutinising decisions that jurisdiction was established, given the extent of the powers available to the CMA when it was established. It may be noted that those comments apply as much to the CMA’s market investigation jurisdiction as to its merger jurisdiction. The CMA retains a discretion to apply the wooly concepts used in its jurisdictional tests: but it has been warned that judicial scrutiny of its approach may now be more searching than has previously been the case.

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