Examination of Witnesses (Questions 20-39)
Mr Rufus Ogilvie Smals, Mr Alex Nourry, Mr Tim Cowen
and Mr James Flynn QC
22 NOVEMBER 2006
Q20 Chairman: I want to put this
in a modern perspective. We do not want to pretend that the problem
is as it was before the fast-track procedures.
Mr Cowen: May I clarify this point? That is
entirely fair when it is a fast-track procedure. If you were to
look at something like the MCI WorldCom case, which took
considerably longer, I know that the number is probably in our
bundles, and a number of other cases, those have taken considerably
longer. It depends on whether the parties are willing to make
an application for expedition in some ways. If they have abandoned
the transaction in the meantime, perhaps their interest is affected
by that.
Mr Ogilvie Smals: We know, for example, in GE
Honeywell that the period was four years to get to the end
of the CFI proceedings. These time limits do depend on the fast-track
procedure being granted to the parties.
Q21 Baroness Kingsmill: It seems
to me that one of the things you are getting at is the big discrepancy
between the judicial timetable and the corporate timetable, that
mergers are things which need to take place relatively quickly
and there needs to be a relative element of certainty as far as
the parties are concerned. In fact, certainty is probably more
important than anything else, it seems to me. I wondered if you
had had any evidence that the current arrangements had proved
any disincentive to people considering mergers at all and the
length of time that the whole process was likely to take. That
was the first part of the question. The second part of the question
is: are there any useful comparisons with the way (and forgive
my interest in this) that it compares with the British system,
moving from the competition to the CAT, the three bodies (the
OFT, Competition Commission and CAT) and if that is a more speedy
and efficiency system that provides more certainty to the parties.
Mr Ogilvie Smals: In the first part of your
question, you need to take into account the entire system from
soup to nuts, which is perhaps a little bit beyond our remit today.
At the end of the day, I think parties are deterred by a merger
control system which seems unpredictable both as to outcome and
as to length. I am not sure I can really make much more of a helpful
comment than that. On the second part of your question, are there
any lessons to be drawn from the UK experience, the view of the
CBI is that the answer to that is yes. We know that there have
been some comments in the evidence that it is not an apples-to-apples
comparison, but we think there are a lot of good things that have
come out of the UK system, which shows that in a sense it can
be done. I heard Sir Christopher Bellamy at a public meeting saying
not so long ago that at the Competition Appeal Tribunal they are
dealing with matters in weeks which takes the European courts
months to deal with. We are not seeking to be unfair on the CFI.
We know that they have wider problems. They have the language
issue. We cannot contend there is not a language issue. British
people are not allowed to talk about it, of course, because it
is politically sensitive but it is a major problem that the CFI
has somehow to overcome. Quite apart from the language issue,
I think in the Competition Commission evidence to this committee
they refer to the five main principles that the Competition Appeal
Tribunal follows. I am afraid I cannot recite them off by heart
but they are in the evidence. That symbolises or is symptomatic
of their approach to the procedural challenges which these sorts
of cases create. Somebody has kindly passed me the evidence of
the Competition Commission. I will give the sub-titles of those
five main principles: one, early disclosure in writing; two, active
case management; three, strict timetables; four, effective fact-finding
procedures; and, five, short and structured oral hearings. These
are all basic principles which are not just hot air. This is the
way the court actually operates. There are some lessons to be
drawn from there and from which the European Court would benefit.
Q22 Chairman: Is it another major
distinction between our own domestic system and the CFI that of
course in the European scheme all states have got to be allowed
to participate if they want? Is that a major difference? I do
not know how far other states do participate in these major merger
disputes.
Mr Cowen: I think the answer is yes. There is
a question of language, which does cause delay. This partly answers
a question raised earlier as to why the suggested solution is
perhaps, we think, the better of the ones that have been considered.
The language is part of the issue of delay but we think that there
are three things that actually cause delay. One is workload, and
if there were a panel, you could perhaps have new people and that
would give you more capacity, so that would address that sort
of issue. The next question is really expertise. Whilst we are
not suggesting that the quality gate should be changed, the criteria
for becoming a judge should not be changed, if when considering
the potential applicants, a decision were made in favour of those
that had expertise in the area, that would obviously be an easier
thing because those with expertise can deal with things more quickly.
Also, with new procedure rules, because we are dealing with a
new judicial panel, perhaps they could tailor the rules to the
specifics or the relevant types of procedures that relate to competition
matters. The sorts of things that are in the CAT in the UK could
then be more relevant, and that would not be the case in relation
to other forms of change.
Q23 Lord Lester of Herne Hill: Obviously,
to use that horrible word, all stakeholders, including the business
community, have a strong interest in improving the procedures
of the court, and others could make exactly the case you make
in their own areas. Of those who have given evidence to us so
far, the one who actually has the inside experience of what is
wrong is of course Sir David Edward, since he actually served
on the court. In his characteristically precise evidence, what
he tells us is that it is quite unacceptable that the courts are
in a procedural straightjacket, that it depends upon consent of
the Member State to change its rules, and that there are various
bottlenecks; many of them, and he thinks the most significant,
are attributable to the parties who clutter up the court with
unnecessarily long-winded and prolix arguments and documents.
His evidence is really an argument for case management, which
you have mentioned, and changes in the rules. If one goes back
therefore to Lord Jay's question a few moments ago, why is that
not a more sensible and proportionate way of tackling the problem
than creating yet another chamber, yet another court to add to
the existing mess, if I can put it that way?
Mr Ogilvie Smals: I will ask James Flynn, who
is a practitioner, to respond to that. He has more direct, hands-on
experience of this.
Mr Flynn: I hope not on the basis that I know
something about the prolixity! There is, my Lord Chairman, a lot
of truth of course in what Sir David Edward says. It is very true
that many competition cases are packed with annexes and are extremely
lengthy, and there is no doubt that they could be pruned down
and the Court of First Instance could be more forceful with parties.
I think, though, that what the court is saying, through Mr Vesterdorf,
is that even with all that and in the best case they have been
able to manage, it is, as Mr Roth's table says, seven and a half
months. Our starting point really is that that is just too long.
Q24 Lord Borrie: Exactly on that
point, six months is regarded by the CBI as the maximum period
before review if a potentially desirable merger is not to be abandoned.
How do you reconcile that period of six months with the inevitable,
correctly inevitable, procedural requirements for a fair hearing
and preliminaries so that everybody gets a chance to have their
say and so the decision at the end of the day is therefore a better
decision, plus of course taking into account the risk that there
is very often a party to the proceedings who does not want the
merger to go ahead and therefore every opportunity to delay will
be taken? How can you suggest that a new procedure is going to
be any better at keeping within the six months than the expedited
attempts of the CFI to achieve such?
Mr Ogilvie Smals: This goes to the root causes
of the problem. I think Sir David Edward did allude to this in
his evidence that really the language issue is taking up a huge
proportion of the case time. The time is not being spent on making
sure that people have enough opportunity to raise their arguments
and to respond to the arguments of others. A huge proportion of
the case time is being taken up by this single issue of language.
To us, that is the core issue that has to be addressed here. There
are no two ways about it. Just in terms of the timing, we say
six months and they say they have done a case in seven months.
We do not believe that is sustainable, and we have been told indeed
by the court itself that seven months is a not regularly achievable
timeframe. They said that that was absolutely exceptional and
they doubted whether they could ever replicate that time. More
realistically, we are looking at 10 to 12 months. I would say
that, in addition to that 10 to 12 months, you have to remember
there are some other add-ons because what the CFI process ends
with is remittance back to the European Commission for another
decision. It is not the end of the story. You have to add on that
as well.
Q25 Chairman: That is one of the
suggestions, that it could be made the end of the story. The CFI
could be given the power themselves to take the decision. That
is another story. Apropos of what Lord Borrie has raised
with you, paragraph 4.6 of Sir David Edward's evidence was that
he suggested "parties might be faced with a choice between
an expedited hearing on a limited number of arguments and a fuller
hearing on every possible argument. This seems to me to be sensible
provided that no-one has an interest in preventing the
merger by delaying the hearing". In the ordinary way, who
does have an interest in delaying? Presumably the Commission,
who have of course refused in the first instance, are not trying
to filibuster; they are not trying to obstruct a fair hearing
of the review process upon their decision. Who is trying to do
that?
Mr Nourry: In a contested bid situation the
target for example may be trying to prevent itself from being
taken over, so they would have an interest in opposing a transaction.
You also have third parties, in the appeal for example in the
Sony/Bertelsmann case, which has resulted in a joint venture
being reopened which was cleared up to two years previously, which
is obviously not good for certainty.
Mr Flynn: On a point of information, the option
mentioned in that paragraph is one which the CFI already offers.
It is already possible for the party to put in a full application
and say, "If I have expedition, I only wish to argue grounds
one and two".
Q26 Chairman: In the roundest terms,
in what proportion of these cases that get before the CFI is somebody
trying to delay?
Mr Nourry: They tend to be contested mergers
where you have a fairly concentrated market, so in the GE Honeywell
case, for example, you had two or three interveners.
Q27 Lord Bowness: I do not want to
labour this procedural point. If, as I understand it, procedure
is the problem, and I equally understood you preferred the idea
of setting up a judicial panel, you were endeavouring to try to
change the procedures of the CFI. It seems to me that if you set
up a judicial panel, the rules of procedure have got to be agreed
by the Court of Justice anyway and then by the Council. If you
follow the precedent of the Civil Service Judicial Panel, they
follow the rules of the Court of Justice until they have got their
own. I do not know what the position is with that. Does that not
emphasise the point that if you have got to go through that routine,
then you ought to start with the procedure of the CFI? You are
going to have the same problem with the judicial panel when you
set it up.
Mr Ogilvie Smals: If I may respond to that,
under the Treaty of Nice it is not a loophole as such but the
one glimmer of light in the proceedings is that if a judicial
panel is established, then it has to have its rules of procedure
approved by the Council acting by qualified majority vote. You
would not have to get unanimity of the entire Council. That is
seen as being, in a case like this where there is not a disagreement
that something needs to be done, a clear issue. One does not hear
anybody anywhere saying that this is not the problem. The real
hurdle is for the Council to decide unanimously that a judicial
panel needs to be set up, but, once you have got over that first
hurdle, one would hope that the procedural rules would be a lesser
problem. I think, frankly, if they were just to replicate the
CFI procedural rules, then it would be a nonsense. I certainly
agree with that. It would be a complete nonsense. We would be
getting nowhere fast. We see several benefits of the judicial
panel. It can set up its own procedural rules which are tailor
made for competition cases and the urgent issues that arise. It
would also create, as Mr Cowen was saying, greater expertise in
the field of competition law. So there are improvements on several
different levels, as well as being much quicker.
Q28 Lord Mance: Going back to the
question of language, looking at Sir David Edward's paper, firstly,
he does not seem to identify it as one of the major problems,
but, secondly, he is quite clear in paragraph 3.1 and the ensuing
paragraphs that it would be a very difficult problem to solve
by agreement between Member States and it would be no easier in
relation to a Competition Court than it would be in relation to
the CFI. It seemed to me also on the subject of procedure that
that may apply; a judicial panel can set up its own rules but
only within the limits of its statute. If Member States would
agree to greater flexibility there, then perhaps they could be
persuaded to agree to greater flexibility in relation to the CFI.
One is back to the basic point: are there not simply other ways
of cracking this nut?
Mr Ogilvie Smals: I assume, and maybe I should
not assume, my Lord Chairman, that the committee is going to take
evidence from members of the CFI itself. I would urge you to listen
to what people such Judge Vesterdorf actually have to say about
this. He has been very clear with us. We were greatly influenced
by what he had to say.
Q29 Chairman: Yes, but if ground
is given there, you would be as happy as anybody? It is the end
product in which you are interested rather than the route by which
you get there?
Mr Ogilvie Smals: Exactly so.
Q30 Chairman: As for the composition
of the proposed court, we are looking at Article 225a and that
requires members of the judicial panel to be chosen "from
persons whose independence is beyond doubt and who possess the
ability required for appointment to judicial office". What
qualifications here is one looking for and should one be looking
beyond lawyers as members of this court? Is that a possibility,
a good idea, or are we really basically going to be stuck with
competition lawyers? That is not for Mr Flynn to answer!
Mr Ogilvie Smals: I will not ask Mr Flynn to
answer that. My Lord Chairman, as I read the Treaty of Nice, I
do not think it precludes the appointment of non-lawyers to the
position of members of the judicial panel but from the point of
view of the CBI and as, if you like, a stakeholder in the process,
it does seem to us that the primary role of the judicial panel,
if it is set up, would be to conduct what is actually a legal
judicial process. We believe that people entrusted with that task
need to be selected on merit and to have relevant experience.
If that relevant experience can be found outside the realms of
competition lawyers, then so be it. In the business community,
I do not think we have a particular axe to grind. We do see non-lawyers
sitting in competition bodies elsewhere in other countries, and
also at the CAT of course.
Q31 Lord Clinton-Davies: What about the
possibility of national competition judges being seconded?
Mr Ogilvie Smals: Our response on that is that
we do not have a problem with that from a business standpoint.
The caveat we would register, though, is that we do not think
it would be a good idea for national judges to come and go as
they please. If they are going to spend some time, it ought to
be for a decent period. What we would have in mind is certainly
probably three years or so under secondment. We think that would
be a healthy development and that that would be part of the capacity-building
in the adjudication of competition law matters, which we think
is entirely welcome and helpful.
Q32 Lord Clinton-Davis: Is that secondment
based on experience or not?
Mr Ogilvie Smals: It is not based on experience.
James, are you aware of any secondments currently that take place?
Mr Flynn: It is not possible in the Community
system at the moment. That would be an innovation.
Chairman: I know you have ad hoc
judges appointed for individual cases in Strasbourg but I think
that is all rather different.
Q33 Lord Lester of Herne Hill: When
UK judges are sent to European courts, under recent practice the
post is advertised and an independent committee interviews them,
certainly on one occasion by you, Lord Chairman, but other Member
States do not follow that transparent, merit-based practice when
they appoint judges to the two European courts. Are you satisfied
that the present process of appointment really does lead to the
necessary independence and qualities that are needed on this court,
to say nothing about the other European court?
Mr Ogilvie Smals: There is a fairly recent precedent,
which I think did work reasonably well, which is the judicial
panel that has been set up recently for staff cases. I think that
came into being earlier this year, in January 2006. There was
a selection process for the judges of that tribunal. I understand
that it worked very well. They established a selection committee
that comprised a number of people from different countries. I
think Sir Christopher Bellamy participated in that. The post was
advertised and a large number of applications were received, I
believe it was in the hundreds. At the end of their evaluation
process, they ended up with a short list of 14 names, which were
put in order of merit, if you like, and sent to the Council and
the Council chose the first seven names recommended by the panel.
I do not believe that anybody has questioned the integrity of
that process, if I can put it that way. I would think that now
that a process of that sort has been undertaken and completed,
that this is how any appointment to this new Competition Court
would take place also.
Q34 Chairman: Is that the only instance
of judicial panels being appointed under 225a?
Mr Ogilvie Smals: I believe so, yes.
Q35 Chairman: You say there were
seven judges?
Mr Ogilvie Smals: There were seven judges in
that case, yes.
Q36 Chairman: They sit in two panels
of three I think.
Mr Flynn: Yes, I believe so.
Q37 Lord Mance: How far is that likely
to be transposable to the present context? It was an admirable
process, I agree with you, from what I know of it, but in apolitical
context where states did not have an interest, an internal staff
tribunal, would that be likely, one asks oneself, and would it
be acceptable to Member States in the competition context? I do
not know whether you can help on that.
Mr Ogilvie Smals: One does not know but I would
think that it would be quite difficult to step away from that
procedure. At the end of the day, it is a procedure which, as
I understand it, is supervised by the European Court of Justice.
Mr Flynn: It was set up under Council regulation.
The competition court also would be a court which would not need
one judge from every Member State. There would have to be some
method of whittling it down. We think it would probably be, say,
nine judges rather than the seven of the staff tribunal. There
certainly would not be 27. Some procedure would have to be found.
Q38 Chairman: One question we have
raised with you in writing is the possibility of using economists
and accountants in some fashion as assistant rapporteurs as apparently
envisaged in the EU Patent Court. Do you have any views on that?
Mr Ogilvie Smals: Yes. We do not really see
a sound case for that. To the extent that a Competition Court
needs to have access to expert advice, then that, as I understand
it, is something that is available for them to procure as necessary.
If you get into a situation where you have experts who are, if
you like, participating in the decision-making as opposed to advising
on issues arising in the case, matters become a little confused.
Q39 Chairman: Can we move to the
question of appeals? Under Article 225a, any decision by a judicial
panel is subject to a right of appeal on points of law or as may
be specifically provided for by the decision. They can have a
right to appeal also on fact to the CFI and decisions of the CFI
are exceptionally subject then to review by the Court of Justice
itself. What should be the jurisdiction of the CFI to hear appeals
from the Competition Court as you propose? Should it be law only—I
think you have already hinted that it probably should—or
should there be some scope for factual review?
Mr Flynn: The view of the delegation is that
it should be limited to appeals and it should effectively be the
same system that one has at the moment in the system of appeals
from the Court of First Instance to the Court of Justice. It would
just be shunted down a level and so it would be appeals on points
of law only.
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