Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 480-499)


24 JANUARY 2007

  Q480  Chairman: After the December application for annulment, 1999, you then wait very nearly two years for the hearing. We have seen in the year 2000 you have the defence, reply and rejoinder. Are you pushing the Court? Are you saying "How long is this process going to take? Can you speed it up? We are still anxious to acquire this company", et cetera? Or do you just let the thing take its leisurely course?

  Mr McMahon: These pleadings are very extensive because, as I said, at this stage I think we are the first ever application to turn over a prohibition decision so we do not know how much evidence the Court is going to want to see, so rather than get it wrong we give them as much as we think they could possibly want to see. We have third party expert evidence in our submissions and really it is between us and the Commission to get the pleadings sorted out. The Court is making orders that if we submit a defence by then the Commission must reply to that by such-and-such a date. They did give certain extensions to some of the filing dates for the Commission; I do not think we ever applied for or needed an extension to any of our final deadlines. There is a fine line in conducting litigation, in my view, between pressing the Court and annoying the Court and I think it is best to stay well away from that line and just remind them that you are still there but without annoying the Court or putting pressure on, for example, the Juge Rapporteur. I do not think it does you any favours to do that.

  Q481  Lord Borrie: I have the impression, and please correct me if I am wrong, in your answers to the Lord Chairman and in your answers to Lord Leach of Fairford, that while you had good practical reasons for wanting to get an annulment as well as the feeling that the Commission's decision was wrong and the strong moral feeling, if you like, that that should be altered, you were not in a hurry for practical reasons to get a decision of the Court. That is the impression you give me in answer to questions from round the table the last few minutes. As you know, in this inquiry we are concerned as to whether the Court proceedings and the Court itself or the Court officials take too long, unduly delay or are responsible for dilatoriness, or perhaps whether one of the other parties is responsible for dilatoriness, and in answer to my earlier question you did not blame anyone for the rather lengthy delay which is obvious on this timetable here. I wonder, therefore, whether your evidence tells us very much about whether the Court is doing the best it can to move things on.

  Mr McMahon: I think it is important to bear in mind that nobody had pursued an application like this before; that there was an awful lot of evidence that had to be considered by the Court and by the judges. It would not be a correct understanding that we were not frustrated by the delay; we were frustrated by the delay and I regularly received requests from my colleagues on the board as to when the thing was going to be resolved. The fact of the matter is that the process is slow, one has to be patient, and trying to push the Court or push the judges is not necessarily the most sensible way to conduct the case if you want a successful outcome. There is a trade-off and you have to go with the flow, to a certain extent. We would very much have wanted a much faster decision; we would very much have wanted this to be dealt with in a matter of months and not years. I do not think that institutionally the process can or could accommodate that. The fast-track process, which was not available to us, may well do that but I have no experience of that. Yes, we would very much have wanted the whole procedure to be much quicker but I do not think jumping up and down and shouting at the Court is the right way to behave. You have to be patient and wait and see how it comes out. By the time we got to September 11 of 2001 it sort of did not matter any more, but by then we had spent the money and were just waiting for the decision.

  Q482  Chairman: The fast-track procedures, I am sure you appreciate, involve some restriction in the number of grounds of challenge. You have to show a certain fastidiousness if you are going to persuade the Court to accelerate your case above all others. Do you think you would have been prepared to take the sort of short cuts that would have allowed for the fast track procedure?

  Mr McMahon: That is a very difficult question to answer. The fact of the matter is that going through the old procedure we got the judgment we set out to achieve and whether, if we had taken a more economical approach to the evidence and a more economical approach to the arguments we put forward, we would have been as successful I just cannot answer. I think it is unfortunate that one has to consider potentially limiting the legal arguments that are available to one or the evidence that one can put forward in order to have a swifter decision. I think that there are lots of areas where difficult complex matters can be dealt with fairly swiftly and not in a matter of two to three years. Therefore, if I were to start again I would hope that there was no need for a fast-track procedure; that you could put all your arguments forward and all of your evidence and still the matter would be dealt with swiftly. The world is not perfect and I do not know if I were to start again today whether I would go for a fast-track procedure. I just do not know.

  Q483  Chairman: Were you conscious of language being one of the particular delaying factors in the case?

  Mr McMahon: From the outside looking in at the Court process, no, I do not know whether language was a problem. I do know that there were long delays and whether language was the cause of those problems, or lack of resources, or a combination of those matters, or the judges not being available because they were on other cases, I do not know. I strongly suspect that there may have been a language factor but I did not see it because, again, it is part of the internal workings of the Court and I am one of the litigants to the matter so I should not see the internal workings of the Court.

  Q484  Baroness Kingsmill: In my experience at the Competition Commission there were many complex issues which we had to consider, and there was always a date by which we had to have arrived at our judgment. This is not a discipline to which judges are accustomed to submitting themselves. It is a judgment, however, which they often impose on the parties to litigation. I wonder if you think it would be helpful in speeding up the process, without the necessity, for example, for a whole new Court, if judges were perhaps a little more disciplined in the way in which they considered matters?

  Mr McMahon: I am going to be a little guarded in my response because I currently have a case before the Court and I think they do a very, very good job! I think anything which can speed the process up would be good. What I do not know is the extent to which the resources and the time of the judges is committed elsewhere. I do not know how much time they have on this particular case against all of the other cases, and I do not know to what extent it is possible to effect a time limit on their deliberations on a particular case. If that could be done without prejudicing the excellent work which I have seen and the thoroughness and the familiarity with the papers, if that could be done, and whether time limiting is the right thing to do, I do not know but I can see the advantages of it. I hope that has answered your question.

  Q485  Baroness Kingsmill: You have been very diplomatic!

  Mr Jennings: From a commercial point of view it would be very helpful to have more visibility and certainty as to when a decision might be reached or how a process might unfold. Certainly planning in advance is greatly assisted by having that sort of knowledge and visibility.

  Q486  Chairman: I think you are right in saying that your decision in June 2002 was the first successful appeal or application to annul a blockage by the Commission, and that was followed, I think, by two similar decisions which resulted in annulments of merger blockages, Schneider Electric and Tetra Laval, both in October 2002. We have been given to understand that since then the Commission for their part, having received, so to speak, that series of bloody noses, have improved their own procedures, introduced various safeguards and so forth. Are you aware of changed practices by the Commission?

  Mr McMahon: I think they announced the changes to the Competition Directorate the day before the decision in our case was issued by the Court, so I think clearly they were concerned about what had happened. I have had one other matter before the Commission since then which was a much simpler arrangement which went through very quickly and we got clearance. Whether they have changed their ways I cannot say because I have not been before them for a particularly long time. What I am concerned about, and I have seen some of the other submissions about this, is the idea that the Commission both investigates and then determines the outcome of the filing, which I think does give rise to some problems.

  Q487  Chairman: We have dipped our toes into that problem but it is not really the central thrust of our inquiry and I am not really sure how much we can usefully ask you about that. Can I just clarify this position: there was no third party involvement at all in your case except, as I understood you to say, there might have been some surreptitious confidential communication between—what, those who were not perhaps welcoming your overtures and the Commission?

  Mr McMahon: I think what happened was that in the consultation process, in the serious doubts inquiry, the Commission then sought views from various interested people and bodies and various industry bodies then made their views known to the Commission as part of their investigation. I think that is entirely normal and entirely standard practice, to see what other competitors think and see what the industry bodies think and what consumer groups think. That process certainly happened. What I do not know is what those individual entities actually said because that is part of the investigation process and should, I think, remain confidential. So it was not just the target business that made representations to the Commission; it was other interested organisations.

  Q488  Lord Leach of Fairford: In allowing the Kuoni bid and disallowing yours did they produce distinguishing characteristics between the two bids and were they the subject of the appeal?

  Mr McMahon: I cannot recall in any great detail other than that the size of the Kuoni business in the UK at the time was significantly smaller than ours.

  Q489  Lord Leach of Fairford: But it was about the same size as the target company?

  Mr McMahon: But Kuoni is a Swiss-owned business. Its operations in the UK are much smaller but its operations in continental Europe are much greater, so I think the fit there was a UK/Europe fit whereas I think we were trying to do a UK/UK transaction.

  Q490  Lord Leach of Fairford: But those were the grounds on which you were originally prohibited, the competition effects within the UK, rather than the broader regional global proposition, is that correct?

  Mr McMahon: That is correct. The taking of the market from four principal players in the UK down to three was anticompetitive in headline terms.

  Q491  Lord Leach of Fairford: In one market?

  Mr McMahon: In the UK market, and that is what the Court was asked to look at and the Court said that that decision had not been properly made.

  Q492  Chairman: Mr McMahon, in one sense I have the feeling that your experience, helpful though it is, in a sense is becoming rather historic. As you say, yours was the first case that led to an annulment of the Commission rejection of a merger bid; it was before any changes to the Commission practice, before any introduction of a fast-track procedure. Do you feel you are able to assist us on these wider questions as to whether there is now the need for a new EU Competition Court? Whether there should be panels introduced under Article 225A or new specialist chambers in the existing CFI? Do you feel confident of views on this?

  Mr McMahon: I am not going to hold myself out to be an expert on the current process because I have not dealt with the process of fast-track procedure. In terms of having been asked to give my views as to the way it has worked in practice the way it has worked for us in practice is that the original, non-fast-track procedure, and it is still an available procedure, operated so slowly that by the time we got any kind of decision out of the Court, which was a favourable decision, the underlying transaction had gone away, and that cannot be, in my view, a very sensible state of affairs. Therefore improvement in the process is appropriate. Even if the fast-track procedure takes seven, nine or twelve months I do not think the interests of business can wait that long. With a transaction which has been prohibited after maybe a one-month or five-month investigation process, if you have to wait another seven or twelve months the transaction is just as likely to have gone away whether it is that period of time or whether it is two or three years.

  Q493  Chairman: So what is the maximum time that you need which would mean you could then still hope to take advantage of a successful annulment?

  Mr McMahon: I have seen various submissions in the evidence which has been put forward talking about six months to get a decision, and that feels about right. I think you can probably put a business on hold for six months. For any longer than that, even if you are successful, by the time you come to buy it the business itself is seriously damaged.

  Lord Mance: On timing, I think you mentioned that the fast-track procedure was introduced the day before to the hearing, am I right, in your case? The 10 October?

  Q494  Chairman: No. The improvements in the Commission's practices.

  Mr McMahon: The changes in the Commission's structure and the way the competition cases would be dealt with I think were announced, and I apologise if I get this wrong, around about the same time as our annulment decision.

  Q495  Lord Mance: That is what puzzled me because we have been told in the evidence that they came in in 2001, and that, indeed, the Tetra Laval and Schneider cases were handled under them.

  Mr McMahon: I may have that wrong—

  Chairman: I am sorry but shall we make sure we are talking about the same thing? The Commission introduced changes in the way they processed the merger applications and reached blocking decisions. Fast-track decisions are the CFI's processes by which they deal with the challenges.

  Q496  Lord Mance: Sorry, my misunderstanding. The changes in the fast-track procedures by the CFI were nothing to do with anything that you had said or experienced?

  Mr McMahon: Not that I am aware of.

  Q497  Lord Mance: Because they must have come in in the course of the period around or just after the pleading, and that process leading up to the first hearing itself took ten months.

  Mr McMahon: That is right.

  Q498  Chairman: Can I just clarify this with you? Did you regard the terms of the decision you got whereby the prohibition was annulled as enabling you the very next day to proceed, if you had wished to do so, with your merger, or would that simply have led to the Commission taking a fresh decision?

  Mr McMahon: We could have made a fresh approach, a fresh bid, but it would have been the subject of a fresh clearance filing, so we would have had to start all over again.

  Q499  Lord Leach of Fairford: But your confidence would have been even higher than it was the first time?

  Mr McMahon: With the benefits of that decision, if the position of the parties had been the same in June 2002 as it was in April 1999, we would have felt fairly confident about putting forward another offer.

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