Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 432-439)


24 JANUARY 2007

  Q432  Chairman: Welcome to Sub-Committee E, Mr McMahon and Mr Jennings. I know that Mr McMahon has given evidence to a Sub-Committee before and knows the form. We are in public; it will be transcribed and you will get an opportunity to correct and perhaps add to that. In the meantime it will be webcast. Mr McMahon, we know that you are Group Company Secretary and Head of Legal Services at MyTravel Group. Mr Jennings, I understand, is a fellow director?

  Mr McMahon: James is the Group Strategy Director in charge of corporate development, and merger and acquisition activity. He and I worked together on the MyTravel/First Choice transaction.

  Q433  Chairman: Excellent. As you know, we are anxious to hear from you the user's experience of these processes, the insider's view of the practical problems you meet. You have very helpfully provided us, I see, with a chronology which I have not myself, I am afraid, had an opportunity to read but I think you are aiming to talk us through that and give us an introduction by telling us about your thus far thwarted attempts at a merger.

  Mr McMahon: I am very happy to do that. Maybe I could just, my Lord, give a brief introduction of the background to our involvement in this. MyTravel used to be known as Airtours and in 1999 as Airtours we were one of four major UK package holiday companies, and we were probably number two in the market and First Choice was probably number three, there or thereabouts. They were fairly similar sized businesses. In 1999 the board of Airtours decided that we would quite like to buy First Choice so we made a bid to purchase it financed entirely by shares. The principal conditions were that we got control and that we got regulatory approval. Where we have ended up is clearly the regulatory approval was not forthcoming. The relevant regulatory authority was the European Commission because of the turnover of Airtours across Europe, and when we made our bid which was on 29 April, at the same time we made the appropriate filing to Brussels in Form CO. A month later, in accordance with their process, the European Competition Directorate, as they were then, decided to initiate a phase two or serious doubts investigation, and, just going through the chronology, there was then a series of procedural steps including a statement of objections and our reply to that leading to a hearing before the hearing officer in July. We then, in an effort to make some remedies, made a series of undertakings. Those were considered by the Commission's Advisory Committee a couple of days later, on 9 September. Following that we submitted some further undertakings but, on 22 September, the Competition Directorate decided to prohibit our transaction. We were extremely disappointed. The bid which we had made in April under the rules of the City Code had had to lapse in June, because if you go into a serious doubts investigation, a second stage regulatory investigation, you have to lapse your public bid. We had spent all of the summer effectively trying to keep the transaction warm so that if we got through the second stage of the investigation we could re-bid, and the evidence which we subsequently put into the Court is that we would have re-bid, so we were very keen to re-bid. However, because the transaction had been prohibited we were not able to re-bid. Thereafter we thought that we ought to see what kind of redress there was, because we thought the decision to prohibit the transaction was incorrect, so, following advice, we submitted in December within the appropriate time limit an application for annulment of that decision. That application came before the Court, after a series of procedural steps during the following year, in October 2001, about 18 or 20 months after we had submitted it, and we got a decision on that application in June 2002, so the prohibition decision was taken in September 1999 and the annulment of that decision was issued in June 2002. We were very pleased that we had been vindicated, if I may say, in our decision to bid, that our decision that we ought to get regulatory approval which had been made in April 1999 was vindicated, and that the Commission's decision to prohibit our transaction had been annulled. We had at that stage incurred a significant amount of costs so we made an application effectively for our trial costs. There was then a series of hearings, a series of exchanges with the Commission, resulting in a claim for costs, a taxation claim if you like, for costs before the Court. That was dealt with in June 2004 but in the meantime, having analysed the judgment of the Court of First Instance on the annulment of the original prohibition decision, and looking at the provisions of the Treaty of Rome which entitled those who have been involved in a matter which the Commission institutions have got wrong and which give rise to a claim for damages, we decided to make a claim for damages, and that claim for damages is on-going and remains before the Court. For reasons which I am sure your Lordships will understand I prefer not to discuss anything about that damages claim because it remains an open case. However, suffice to say that our application for damages was lodged in June 2003; the pleadings closed in May 2006; and we await a hearing date. That gives a brief overview of the circumstances in which we have had experience of the Court process in seeking to redress an incorrect decision made by a European competition authority. There are one or two clear conclusions. Would it be appropriate for me to just summarise those now?

  Q434  Chairman: Yes.

  Mr McMahon: Put simply, it takes a very long time. In our instance, certainly, by the time the Court rules upon whether the original decision by the Commission was correct the underlying transaction has gone away because life has moved on. Taking a step back, between 1999 and June 2002 there was the September 11 attack in New York and other places and that changed the nature of the travel business, so by the time we came to get our decision which would have allowed us to re-bid in 2002 everybody's position had moved on significantly and the world had changed quite considerably. The upshot of that is that, whilst there is a right of redress, if the Commission gets a competition decision wrong and that can be established, the period which it takes to get that decision determined by the Court essentially means that the redress which one is seeking is not available to keep that underlying transaction alive, and the transaction has gone. Mr Jennings may want to talk about the detail of the original bid, if that would help, my Lord, or maybe we could talk about the competition process.

  Q435  Lord Borrie: I would just like to ask Mr McMahon, if I may, or Mr Jennings, to say a little more about the reasons for what seems to be a very long gap, as you have described, between the prohibition decision in September 1999 and the prohibition decision being annulled in June 2002. You mentioned the bombs in New York but, of course, there may be many reasons, and I would be glad to know what you say you think the reasons were, and why there should be such a gap. It may be nobody's fault, it may be partly somebody's fault, it may be a combination of faults on several sides, but what was the case, in your view, here?

  Mr McMahon: That is very difficult to tell, I have to say. Effectively leading the litigation on behalf of the company I can break it down into a couple of areas. The first is it took us a couple of months to make our minds up that we would actually spend the money to seek an annulment application. I had to put it before the board, so having spent most of the summer trying to keep the transaction alive we then had to deal with the fact that the transaction was not then going to proceed, so by the time we got the board to consider whether or not we should be making a claim for the decision to be overturned, frankly it took a couple of months for us to get through all the other matters that had to be dealt with to come to that decision, so that is the pre application period from September to December. In the period from December through to the hearing in October 2001, just under two years, there was an extensive exchange of pleadings—the pleadings were very full and thorough—but those closed effectively seven months after we had started. There was then a period from June 2000 to October 2001 for the Court to have the hearing. So there is a period of the Court's consideration of the evidence and then the oral hearing which took a day, the hearing before the Court took a day, and then between October 2001 and June 2002 there was the period for the Court to decide upon and prepare its judgment. I cannot say with any certainty at all that I know really what was happening in the period after the close of pleadings up to the issue of the judgment other than the hearing, because that was dealt with by the Court's own internal processes. I can say and I am very pleased to say that when we got to the hearing it was absolutely clear that the Court and the judges were thoroughly aware and familiar with all of the very complex issues which were involved. I was extremely impressed by the judges' grasp of what had gone on. The economic arguments and the different economic theories which were being discussed and which had been dealt with through the pleadings were very complex, and maybe I am doing judges down, for which I apologise, but it did not strike me they were matters which judges would automatically have such a keen grasp upon, but they clearly did and they clearly asked very pertinent, very probing questions in the one-day hearing. So the Court processes looking from, if you like, the outside in were that the judges were well-prepared, well-briefed and certainly very knowledgeable, and when they came to make their decision they made a very strongly worded decision which I have to say I believe was completely accurate—it is always a good position to be in when you get a Court decision which is in your favour!—and I was very impressed by that. What was going on beneath the surface I am afraid I do not know because there is no visibility to that, and maybe there should not be any visibility to litigants as to what the Court is doing in dealing with your case, but in the preparation, if you like, of the pleadings and prior to the close of pleadings there was a lot of exchange between the Commission and us which was very full and thorough.

  Q436  Chairman: Since your case they have introduced fast-track procedures. Have you been sent the copies of the evidence we have received?

  Mr McMahon: I have had some.

  Q437  Chairman: Have you had the transcripts?

  Mr McMahon: I have had one or two of the transcripts and I have had some of the written submissions by various organisations and representative bodies.

  Q438  Chairman: Then you will have seen some reference to the fast-track procedures, but plainly those were not working in your time, and were introduced later.

  Mr McMahon: That is absolutely right.

  Q439  Chairman: And gradually they have introduced further accelerated procedures?

  Mr McMahon: Yes.

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