Examination of Witnesses (Questions 480-499)
MR GREG
MCMAHON
AND MR
JAMES JENNINGS
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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