PART 2: THE COMPETITION APPEAL TRIBUNAL

The Competition Appeal Tribunal

Section 12: The Competition Appeal Tribunal

57.     This section creates the CAT. The CAT will take over the functions formerly performed by the appeal tribunals of the CC. Sections 17, 18, 19, 114, 120 and 179 of the Act give the CAT additional functions.

Schedule 2: The Competition Appeal Tribunal

58.     This Schedule sets out the terms of appointment to the CAT for the President, chairmen and ordinary members. The Lord Chancellor appoints the President and chairmen. The Secretary of State appoints ordinary members.

Section 13: The Competition Service

59.     This section establishes a new body called the Competition Service that will provide support services to the CAT. The Service will employ staff formerly employed by the Commission, and take on some of its assets and liabilities. Previously both the CC's inquiry panels and appeals tribunals were supported by the staff of the CC. This arrangement is no longer considered appropriate because the CAT will now hear appeals against decisions made by the CC.

Schedule 3: The Competition Service

60.     This Schedule establishes the Competition Service. The Service will consist of the President of the CAT, the Registrar of the CAT and one or more members appointed by the Secretary of State, and will have its own staff. Part 2 of the Schedule sets out the arrangements for transferring property, rights and liabilities from the CC to the Service.

Section 14: Constitution of Tribunal for particular proceedings and its decisions

61.     This section sets out the arrangements for proceedings before the CAT.

Section 15: Tribunal rules

62.     This section gives the Secretary of State the power to make the rules of the CAT.

Schedule 4: Tribunal: procedure

63.     Part 1 of this Schedule contains provisions concerning Tribunal decisions, and provides procedures for their enforcement. Paragraph 1 of this Schedule provides the procedure relating to decisions taken by the CAT. It contains similar provisions to those currently in paragraph 4 of Schedule 8 to CA 1998 (repealed by paragraph 8(5) of Schedule 5).

64.     Paragraphs 2-8 provide a procedure for the enforcement of certain decisions of the Tribunal that is distinct from the procedure for the enforcement of decisions of the OFT. At present, directions given by the CAT are enforced in the same way as OFT directions: thus the OFT must apply to the court under section 34 CA 1998 for an order requiring compliance with the CAT's direction. The new provisions provide a more direct means of enforcement, both of directions given by the CAT and awards of damages and costs.

65.     The new procedures permit most decisions of the CAT to be enforceable by registration at the High Court in England and Wales, and by corresponding procedures in Scotland and Northern Ireland. By virtue of those procedures, the decision becomes enforceable in the same way as a judgment of the High Court (or, in Scotland, the Court of Session). However, penalties imposed by a decision of the CAT will continue to be enforced as a civil debt due to the OFT, under section 37 CA 1998.

66.     Part 2 of Schedule 4 (paragraphs 2-25) sets out some of the areas that the Rules of the CAT may cover, and is based on the current Part II of Schedule 8 to the CA 98 (repealed by paragraph 8(5) of Schedule 5). New provisions have been added to take into account the CAT's new roles, including appeals on judicial review grounds (for cases under Part 3 and Part 4) and damages claims in competition cases. The CAT rules do not have to cover all of the areas mentioned, and can also cover issues that are not specified.

67.     Part 2 includes provisions for rules to be made in relation to the rejection of proceedings by the CAT in various circumstances (subject to the parties being given the opportunity to be heard). These are, in cases other than damages claims, where the person bringing the proceedings does not have sufficient interest or shows no valid grounds; in the case of damages claims, where the CAT considers that there are no reasonable grounds for the claim or that a person bringing a representative claim is not entitled to do so; and in certain circumstances where the person bringing the proceedings has previously brought vexatious proceedings or made vexatious applications.

Section 16: Transfers of certain proceedings to Tribunal

68.     Section 16 provides the Lord Chancellor with a power to make regulations allowing the courts - at their discretion - to transfer to the CAT matters arising in civil proceedings that require a determination of an infringement issue. An infringement issue is defined as any question relating to whether or not there has been an infringement of the prohibitions in Chapter I or Chapter II of CA 98 or the equivalent prohibitions in Articles 81 or 82 of the EC Treaty. Subsection (3) provides that rules of court may be made in connection with such a transfer. Any such rules would be made in line with the arrangements for drawing up rules of court in the different legal jurisdictions in the UK. ("Rules of court" has the meaning given by the schedule to the Interpretation Act 1978). Paragraph 25 of Schedule 4 specifies that Tribunal rules may make corresponding provision in connection with the transfer of proceedings from a court.

69.     Subsections (4) and (5) allow the courts to transfer to the CAT so much of any proceedings as relate to a damages claim to which the new section 47A of the CA 98 apply (see below).

Proceedings under Part 1 of 1998 Act

Section 17: Third party appeals

70.     This section replaces the existing section 47 CA 1998 by a new version that removes the current requirement for a third party first to request the OFT to withdraw or vary its decision before having a right of appeal to the CAT. For those purposes, a 'third party' is a person who is not a party to the agreement (or the author of the conduct) in respect of which the OFT has made its decision.

71.     Section 47(1) specifies which decisions by the OFT may be appealed by a third party. The decisions covered are the same as in the existing version of section 47(1).

72.     Section 47(2) specifies that a third party appeal may only be made by a person with sufficient interest or who represents persons with sufficient interest. This preserves the existing position, but responsibility for determining whether the party has sufficient interest will lie with the CAT and not the OFT as at present.

73.     Section 47(3) preserves the existing position under the current section 47(7).

Section 18: Monetary Claims

74.     Subsection (1) inserts a new section 47A in CA 1998 that will enable claims for damages, or other monetary awards, to be brought in the CAT (the CAT will also exercise the appeals jurisdiction currently exercised by the appeal tribunals of the CC, and the new review jurisdiction under Parts 3 and 4 of the Act). However, it will be possible to bring such claims in the CAT only where it has been established (by either the OFT or the European Commission) that an infringement of competition law has occurred. The right to bring such a claim will be without prejudice to the existing right to bring similar claims in the courts.

75.     The new section 47A(1) and (3) enable the CAT to hear any claims for damages or other sums of money arising from a specified infringement of competition law, which could be made in civil proceedings before a court.

76.     The new section 47A(6) specifies the infringements of competition law in respect of which a claim may be made to the CAT. These are: breaches of the prohibitions in Chapter I and Chapter II of CA 1998, and breaches of the prohibitions in Article 81 and Article 82 of the EC Treaty. Those prohibitions concern agreements, decisions and concerted practices that have the object or effect of preventing, restricting or distorting competition (Chapter I and Article 81), and conduct that amounts to the abuse of a dominant position (Chapter II and Article 82). Also included are existing decisions taken under the corresponding provisions of the European Coal and Steel Treaty, which expires on 23 July 2002.

77.     The new section 47A(3) disapplies any limitation periods which would otherwise be applicable to such claims. The limitation periods for claims brought before the Tribunal will be specified in the CAT Rules.

78.     The new section 47A(5), (6) and (8) further limit the claims that may be heard by the CAT. A claim may be brought only if it arises out of an infringement that has already been established by a decision of the OFT, of the CAT itself on appeal from the OFT, or the European Commission. Except with the permission of the CAT, decisions are excluded that may still be subject to appeal (for instance an appeal to the CAT itself in the case of decisions of the OFT, to the Court of Appeal in the case of CAT decisions on such an appeal, or an application to the European Court of Justice in the case of decisions of the European Commission).

79.     The new section 47A(9) makes it clear that, in determining the claim, the CAT is bound by the relevant decision establishing the infringement.

80.     Subsection (2) provides that proceedings may be brought under the new section 47A in respect of claims arising before, as well as after, the commencement of that section. This will be subject to the limitation periods specified in the CAT Rules.

Section 19: Claims on behalf of consumers

81.     This section inserts a new section 47B in CA 1998 that enables proceedings comprising claims for damages under section 47A to be brought in a representative capacity by a specified body on behalf of a group of named individual consumers.

82.     The new section 47B(1) , (3) and (4) enable such claims to be made on behalf of any group of two or more consumers, provided that each consumer has given his or her consent, and the claims relate to the same infringement. 47B(3) also permits, under the same conditions, existing claims to be taken over by such a specified body. Such proceedings may only be made by a body that is specified by the Secretary of State under section 47B(9), and on behalf of persons who are claiming as consumers within the meaning given by sections 47B(2), (7) and (8). In particular, the infringement that is relied upon must affect goods or services that were received (or sought to be received) by the claimant otherwise than in the course of his or her business.

83.     The new section 47B(6) provides that all sums awarded under this section must be awarded directly to the represented consumers, who will then be able to enforce the award in accordance with paragraphs 2 to 5 of Schedule 4. It also allows the CAT to order that the sum awarded be paid to the representative body who will then be able to enforce the award on behalf of the individuals in accordance with paragraphs 4(c) or 5(c) of Schedule 4. Such an order may only be made with the consent of both the individuals concerned and the representative body.

84.     The new section 47B(7) and (8) sets out the conditions that must apply before an individual can be said to be a 'consumer' for the purposes of a consumer claim under this section. The infringement must have affected goods or services that the individual has received (or sought to receive) otherwise than in the course of business (although this will not exclude those received for the purposes of a future business). Conversely, the goods or services must have been supplied (or, had they been obtainable, would have been supplied) by a person acting in the course of business. A typical example will be where a consumer has bought goods for his or her own use, whose price has been inflated by a price-fixing agreement either among the suppliers themselves, or the manufacturers, or possibly among the manufacturers' own suppliers.

85.     The new section 47B(9) gives the Secretary of State the power to specify by order, and in accordance with published criteria, the bodies that are permitted to bring a representative claim. Such orders will be subject to negative Parliamentary procedure as specified in section 71 of the CA 1998.

86.     The new section 47B(10) provides that a body wishing to be specified for the purposes of this section must make an application in a form approved by the Secretary of State.

Other amendments of the 1998 Act

Section 20: Findings of infringements

87.     Subsection (1) inserts a new section 58A in CA 1998. The new section provides that certain decisions of the OFT or the CAT regarding an infringement of competition law are to bind the courts for the purpose of a subsequent claim for damages.

88.     The new section 58A(1) specifies the infringements that are covered. These are: breaches of the prohibitions in Chapter I and Chapter II of CA 1998, and breaches of the prohibitions in Article 81 and Article 82 of the EC Treaty.

89.     Subsection (2) clarifies that the new section 58A does not apply in relation to infringement decisions made before the commencement of the section. Decisions made before commencement will therefore not be binding on the courts when the courts are considering monetary claims.

Section 21 & Schedule 5: Proceedings under Part 1 of the 1998 Act

90.     Schedule 5 makes a number of consequential amendments to CA 1998. It amends Schedule 7 to CA 1998 to remove references to the appeal tribunal. It also amends Schedule 8 to CA 1998 and section 49 CA 1998.

PART 3: MERGERS

Summary and Background

91.     Part 3 of the Act makes reforms to the UK's regime for the control of mergers. It will replace the merger control provisions of FTA 1973, other than the special arrangements for the control of newspaper mergers, which will remain. Policy for merger reform has been developed through a programme of consultation that started in 1999. 'Mergers: A Consultation Document on Proposals for Reform' (www2.dti.gov.uk/cp/mergercon/) was published in August 1999. 'Mergers: The Response to the Consultation on Proposals for Reform' (www2.dti.gov.uk/cp/mergerresp/) was published in October 2000. The main proposals, together with some further refinements, were included in the 'Productivity and Enterprise: A World Class Competition Regime' White Paper published in July 2001.

92.     The main provisions of this Part of the Act provide for:

• final decisions on most mergers to be taken by the OFT and the CC rather than by the Secretary of State;

• mergers to be considered against a new test of whether they result in a substantial lessening of competition rather than the current, broader, public interest test;

• discretion for the competition authorities to clear a merger or allow it to proceed with less stringent competition remedies in circumstances where, notwithstanding an expected substantial lessening of competition, they expect it to result in defined types of customer benefit;

• the Secretary of State to continue to decide mergers which raise defined public interest considerations. National security is defined in the Act as such a consideration and there are powers for further such considerations to be defined by statutory instrument using the affirmative resolution procedure;

• revisions to the special regime for mergers between water enterprises to align it where possible with the general regime whilst preserving the importance currently attached to the ability of the water regulator to make comparisons between different enterprises;

• the retention of the existing two-stage approach to merger control. The OFT will carry out the first stage investigation to decide whether a reference to the CC is required. The CC will carry out the second stage, in-depth investigation where necessary;

• the retention of the UK's system of voluntary rather than compulsory pre-notification of mergers;

• statutory maximum timetables for competition authorities to reach final decisions for both first and second stage investigations;

• the replacement of the current worldwide assets-based criteria for determining whether a merger is subject to merger control procedures with a UK-based turnover test.

93.     The path of a merger investigation under the new system is summarised at Annex A.

Chapter 1: Duty to make references

Duty to make references: completed mergers

Section 22: Duty to make references in relation to completed mergers

94.     This section provides that the OFT must refer a completed merger to the CC for further investigation if certain circumstances arise. This differs from FTA 1973's arrangements for reference, where the Secretary of State has discretion to refer merger cases. This section will not apply to cases where the European Commission has exclusive jurisdiction to consider the competition aspects of the merger under the ECMR by virtue of the first paragraph of Article 21(2) ECMR.

95.     Subsection (1) provides that the OFT must make a reference to the CC if it believes there is or may be a 'relevant merger situation' that has or may be expected to result in a substantial lessening of competition. However, subsection (2) provides that the OFT can choose not to refer if it thinks either that the market involved is not of sufficient importance to justify a CC investigation, or that any substantial lessening of competition would be outweighed by benefits to customers.

96.     The OFT will be required under section 106 to publish advice and information on how these provisions will operate, and how it will apply the substantive tests. The substantial lessening of competition test, and the customer benefits concept are explained in more detail in the notes on sections 35 and 30 respectively.

97.     The discretion for the OFT to decide not to refer a merger because the market is of insufficient importance is designed primarily to avoid references being made where the costs involved would be disproportionate to the size of the markets concerned.

98.     Subsection (3) provides that the OFT is prevented from making a reference in each of the following circumstances:

• the merger involves a newspaper transfer;

• the OFT has accepted (or is considering accepting) undertakings in lieu of a reference in relation to the same transaction;

• the merger was the subject of a 'merger notice' and the deadline for reference has passed;

• the merger was referred to the CC before it was completed;

• the merger raises a public interest consideration(s) and either an intervention notice is in force, or the case has been determined;

• the merger is the subject of a request by the UK under Article 22(3) of the ECMR to the European Commission, and the European Commission is either considering the request, proceeding with a case in pursuance of the request, or has dealt with the matter in response to the request.

99.     Subsection (6) provides that the definition of UK markets includes both sub-national and supra-national markets.

Section 23: Relevant merger situations

100.     This section sets out the criteria for a merger to qualify for investigation by the competition authorities, thereby making it a 'relevant merger situation'. It in substantial part reproduces sections 64 and 68 FTA 1973.

101.     It provides that a 'relevant merger situation' is created if: two or more enterprises have ceased to be distinct at a time or in circumstances set out in section 24, and at least one of the following thresholds is met:

• the value of the turnover in the UK of the enterprise being taken over exceeds £70m (the "turnover test"); or

• the merger would result in the creation or enhancement of at least a 25% share of supply of goods or services in the UK, or in a substantial part of the UK (the "share of supply" test). This would cover, for example, both the case of a merger between two enterprises each having a 15% share of supply, and that between two enterprises where one which already has a 25% share of supply mergers with another having a 5% share.

102.     The share of supply test is being retained from FTA 1973, but the turnover test is new, replacing an assets test. Section 123 gives the Secretary of State a power to amend the share of supply test.

103.     Subsections (3) to (8) make further provision as to the share of supply test. Subsections (3) and (4) enable the test to be applied to the net share of goods or services supplied by or to the merging enterprises. Subsection (5) allows the authorities to apply such criteria (such as value, cost, quantity, etc) as they consider appropriate to determine whether the 25% threshold is satisfied, and subsections (6) and (7) allow the authorities to consider whether goods or services subject to different forms of supply should be aggregated for this purpose. Subsection (8) gives the competition authorities the discretion to decide whether goods or services are to be treated as goods or services of a separate description for this purpose.

104.     Subsection (9) has the effect that the question of whether there is a relevant merger situation is to be determined immediately before the time when the reference has been, or is to be made, except in circumstances where the CC has decided to treat the reference of an anticipated merger as that of a completed merger by virtue of section 36(2), when it is to be determined as at such time as the CC may determine.

Section 24: Time-limits and prior notice

105.     This section provides for the time period in which completed mergers may be treated as a 'relevant merger situation' and are therefore referable. These re-enact those applying under FTA 1973.

106.     A reference to the CC must be made within four months of the completion of a merger, or (if later) material facts about the merger being made public or given to OFT.

107.     For this purpose, the section defines the term 'made public' as having the meaning of 'generally known or readily ascertainable'. The intention is that OFT would reasonably be expected to have known or found out about the merger if it has not been notified about it.

Section 25: Extension of time-limits

108.     This section allows for the extension of the four-month period in which a merger can be referred in certain circumstances: where the OFT and parties have agreed an extension; where parties have failed to provide information to the OFT as requested; where undertakings are being sought; or where the UK has made a request to the EC under article 22(3) of the ECMR. Where there are multiple extensions, there is provision for the extensions to run concurrently where it is sensible to count the time period in this way.

Section 26: Enterprises ceasing to be distinct enterprises

109.     This section defines a merger situation. It is closely modelled on section 65 FTA 1973, with one omission to take account of the existence of CA 1998.

110.     The provision in 65(1)(b) of FTA 1973 that referred to 'arrangements entered into in order to prevent competition between enterprises' has been omitted. Where such arrangements do not fall within the merger regime under the Enterprise Act 2002, it is considered they will be better suited to investigation under CA 1998.

111.     Subsection (1) defines 'two enterprises ceasing to be distinct' by reference to whether they are brought under common ownership or common control.

112.     An 'enterprise' is defined in section 129 as the activities, or part of the activities, of a business; and a 'business' is defined to include a professional practice and to include any other undertaking that is carried on for gain or reward or that is an undertaking in the course of which goods or services are supplied other than free of charge. The definition includes 'part of the activities of a business' as it is sometimes an operating division of a company that is acquired rather than the whole of the company.

113.     Subsections (3) and (4) (which are modelled on the equivalent FTA 1973 provisions) envisage three levels of control of an enterprise. These are: material influence over policy; control of policy (often called de facto control); and a controlling interest in the enterprise (often called de jure control). What constitutes material influence or control will be considered on a case-by-case basis by the competition authorities according to the particular circumstances of the case. Under the FTA the authorities have treated the acquisition of the ability to appoint a director or having a 15% shareholding as sufficient to give material influence for these purposes. De facto and de jure control will arise at higher levels of shareholding, with de jure normally requiring more than 50% of the voting rights.

114.     Two enterprises cease to be distinct when there is an increase in the level of control - see section 26(3), (4)(a) and (4)(b). It is thus possible for a merger situation to be investigated at any of the three points where there is an increase in the level of control if the different levels of control are acquired at different times.

Sections 27 and 29: Time when enterprises cease to be distinct & Obtaining control by stages

115.     Sections 27 and 29 reproduce sections 69 and 66A FTA 1973. These provide for the application of merger control to cases where ownership or control of an enterprise is obtained over a period of time. The key rule is contained in section 27(2), namely that mergers are treated as having been completed at the moment when all the parties to a transaction are contractually bound to do so. It makes clear that no account is to be taken of options that have not been exercised or conditional rights where the conditions have not been satisfied.

116.     Section 27(5) to (8) deals with certain cases where ownership or control has been acquired incrementally over a period of time. Where this has been achieved through one or successive transactions or arrangements between the same parties or interests, the competition authorities can treat them as having all occurred on the date of the last relevant event, subject to a two-year cut-off period.

117.     Section 29 allows the authorities to treat a series of separate transactions over a period of up to two years, under which a person or group of persons acquire control of an enterprise, to be treated as occurring on the date of the last transaction when considering a reference. Unlike under section 27, there is no need for the transactions to be linked, nor for them to be between the same persons.