Litigated Issues in mergers and markets investigations: Access to Evidence James Webber Partner, Shearman & Sterling LLP 30 April 2015
Brief for today First an overview of the cases on access to evidence where are we? Eurotunnel v Competition Commission [2013] CAT 30 BMI Healthcare No.1 and Ors v Competition Commission [2013] CAT 24 Ryanair v Competition and Markets Authority [2015] EWCA Civ 83 Second to consider whether there is sufficient access to evidence / some suggestions for change Prior to that need to recap on the background to the access to evidence debate and the key legal concepts 2
The right to be heard and access to evidence If the right to be heard is to be a real right which is worth anything it must carry with it a right in the accused man to know the case which is made against him. He must know what evidence has been given and what statements have been made affecting him: and he must be given a fair opportunity to correct or contradict them Lord Denning, Kanda v Government of the Federation of Malaya [1962] AC 322, 337. 3
Dynamics in access to evidence in UK phase 2 merger and market inquiries Statutory: Behavioural: Legal consequences: EA02 contains no access to the file mechanism Consultation obligation qualified by so far as practicable (ss. 104(2) and 169 (2) EA 2002); meaning subject to Timing constraints Confidentiality CC had no antitrust (CA98 Chapter 1 or Chapter 2) mandate or experience the Article 6 ECHR debate and standards that grew up in EU law had no direct resonance Aim was to be open and transparent in its work, as appropriate, maintaining the confidentiality of information that it obtains. Different from rights of defence/ equality of arms Fully administrative panel of inquiry - not adversarial No allegation of and no need to prove a violation of any law 4
Meanwhile, real life consequences often worse than antitrust fines against a lower intervention threshold and weaker appeal rights Market investigations have a low substantive threshold for intervention: reasonable grounds for suspecting that a feature or combination of features of a market in the UK is preventing, restricting or distorting competition Contrast with standard for antitrust intervention which may be getting lower but is better understood Appeals against market and merger decisions are on a judicial review basis only No right of appeal to an independent Hearing Officer Severe consequences for investigated firms including: forced divestments forced changes to existing commercial agreements prohibitions or requirements on future conduct (e.g. price caps, information remedies or forced access to facilities or IPR) continuous and intrusive monitoring of remedies implementation severe impact on parties business plans and EV of a merger prohibition 5
The Two Legal Controversies 1. What has to be disclosed under the EA02 consultation obligations? Lord Mustill: Since the person affected usually cannot make worthwhile representations without knowing what factors may weigh against his interests, fairness will very often require that he is informed of the gist of the case which he has to answer (R v Home Secretary ex Parte Doody [1994] 1 AC 531, at p 560) Cases query both the legitimacy of the gist standard as well as what it means in practice 2. What restrictions can be placed i.e. how and to whom should disclosure be made? The CMA has the statutory duty so far as practicable to consult parties whose interests are likely to be adversely affected by a decision it is due to make (ss. 104(2) and 169 (2) Enterprise Act 2002). Principle qualification relates to EA02 Part 9 and treatment of confidential information. Cases query the balance between protecting confidential information and adequate disclosure 6
Disclosure of the gist the what question qualitative data Eurotunnel v CC CC redacted parts of its Provisional Findings, withheld documents underlying its analysis (including possibly exculpatory documents) and omitted third party material. Eurotunnel argued CC had not disclosed sufficient information. It made both a general and specific attack: The general challenge: Eurotunnel argued that recent Supreme Court decisions of Al Rawi and Bank Mellat prohibited closed material procedure without express statutory consent. EA02 process was a closed material procedure without express statutory consent Closed material procedure means: party is permitted to comply with disclosure obligations without disclosing material that would be contrary to public interest (e.g. for confidentiality reasons) where that material is instead disclosed to advisers/the court. Judgment on the general challenge: Al Rawi and Bank Mellat applied only in the context of criminal and civil trials. Although Cf: R (BskyB) v Central Criminal Court the CC was not obliged to disclose all inculpatory and exculpatory material. to succeed in its challenge Eurotunnel must go significantly further than simply pointing out material was withheld. It must show that Eurotunnel was unable to understand the gist of the case being made by the Commission 7
Disclosure of the gist the what question qualitative data Eurotunnel v CC The specific challenges Eurotunnel made 4 specific challenges to the CC s withholding of information. For example: The CC decided DFDS would not re-enter the market once it had exited and cited evidence from freight customers that it would be difficult for DFDS to re-establish credibility Eurotunnel said it subsequently found out that there were only two such customers, that neither was asked the specific question and that one gave evidence that the competitor would have been able to successfully reenter Judgment on the specific challenge: The relevant question is not whether Eurotunnel would have had something material to say in relation to information it did not see. Rather is whether on the basis of the information Eurotunnel did see, Eurotunnel was in a position properly to formulate its response to the issues likely to adversely affect it. The CAT held Eurotunnel was informed of the gist on every score in essence the CAT found that Eurotunnel understood the case against it. 8
Disclosure of the gist the what question qualitative data Ryanair v CC CAT The CC denied Ryanair access to third party submissions and responses to information requests, including those relevant to the main theory of harm that Ryanair s minority shareholding hindered potential mergers/jv between Aer Lingus and other airlines Ryanair was unable to determine which airline expressed an interest in partnering with Aer Lingus The CC denied Ryanair access to the Aer Lingus internal documents, providing instead only short summaries of Aer Lingus submissions Ryanair was not given the opportunity to verify the accuracy or completeness of the summaries, or to determine the existence of any exculpatory evidence Ryanair v CC - CAT As is customary, the CC held closed hearings with Aer Lingus and third parties, to which Ryanair was not admitted. Ryanair received instead only very short summaries, or no summaries at all In Ryanair s appeal, the CAT had no access to the evidence upon which the CC relied, proceeding instead on the assumption that the CC was correct in characterising the evidence as confidential and that the CC had provided an accurate and complete gist of the evidence. The CAT ruled that the CC had acted fairly while withholding information and that the information Ryanair had received conveyed a sufficient gist of the case. 9
Disclosure of the gist the what question qualitative data Ryanair v Competition and Markets Authority Court of Appeal Despite all that, at Court of Appeal stage the dispute had boiled down to non-disclosure of the names of other airlines willing to JV with Aer Lingus. Court of Appeal held this did not make the consultation process unfair: Disclosing the names was unnecessary since the CC s case was some form union or collaboration with a third party not a specific union. Ryanair did not need to know the names of the airlines in order to make out its own case on the likelihood of any combination with Aer Lingus. Disclosing the names to Ryanair s advisers would be pointless since they could not assess the evidence without their client s assistance. The Court of Appeal judgment avoided defining the issue in terms of gist. It spoke instead about what was necessary in order to address the evidence (para 42). On the facts of this case, non-disclosure of the names did not make any difference. Query whether any disclosure system would have required disclosure of such information? If Ryanair had been seeking potentially exculpatory information would the result have been the same? 10
Disclosure of the gist the what question econometric data BMI Healthcare (No.1) what constitutes the gist of a case is acutely context-sensitive. Indeed, gist is a peculiarly vague term. Competition cases are redolent with technical and complex issues which can only be understood, and so challenged or responded to, when the detail is revealed. Whilst it is obviously, in the first instance, for the Commission to decide how much to reveal when consulting, we have little doubt disclosing the gist of the Commission s reasoning will often involve a high level of specificity." BMI Healthcare Limited v Competition and Markets Authority (No 1) [2013] CAT 24, paragraph 39(7) 11
Disclosure of the gist the what question econometric data HCA v Competition and Markets Authority HCA appealed to the CAT against the CMA and requested access to data underlying an econometric work product called the Insured Prices Analysis (IPA). The CAT granted HCA access to the IPA data : disclosure of the IPA data was absolutely critical as the basis for the CMA s findings HCA would be hampered from presenting its case with proper force without access to underlying data and modelling Illustration of the importance of disclosure? Once HCA had access to the data it successfully demonstrated that the IPA was unreliable. The CMA accepted that the IPA was no longer reliable and sought remittal of the case. The CAT remitted the case to the CMA in January 2015. 12
Data rooms and protection of confidentiality the how and to whom question BMI Healthcare (No.1) v CC The CAT quashed the data room rules imposed on parties advisers. However, the case is more interesting for the general guidance it gave than the specific findings: The CC has an extremely wide discretion to determine whether information is confidential: Before us, the Commission emphasized how sensitive the Confidential Information was. We have not, of course, seen that material and are not minded to second guess the Commission in this regard (para 47) Confidentiality rings and data rooms are permitted and the CMA has a very wide discretion to decide when to use them: We do not consider that the decision of the Commission, in this case, to protect the Confidential information by way of data room instead of one of the other ways to be susceptible to criticism (para 49) Confidentiality rings and data rooms must nevertheless allow the parties to make worthwhile representations The starting point is that it is for parties to decide how to respond -- not their advisers still less for the body whose provisional decision is being responded to. 13
How and to whom must disclosure be made Reasonable data room rules BMI Healthcare (No.1) v CC Principle: The Data Room rules must compensate for making it more difficult to respond Data Rooms must be open for the whole consultation period Rules should permit the advisers to talk amongst themselves, take any notes and multiple entry Facilities must be available to produce worthwhile responses.e.g. PCs, files of parties submissions, data tools to allow cross checking other reasonable requests 14
Access to evidence current position The gist test remains the test at least at CAT and CMA level. What constitutes the gist is context-sensitive. Two categories developing: Econometric workstreams: disclosure of the detail underlying the work should be obtained. Qualitative data (internal documents, bargaining frameworks, barriers to entry, strategic incentives): disclosure of primary material remains very restricted especially with respect to exculpatory evidence. CMA has almost complete discretion over determination of confidentiality and manner of protection of confidential information (rings or data rooms). Notwithstanding starting point that it is the parties not their advisers who should see the evidence, confidentiality rings and data rooms likely to play ever bigger role. Data rooms are embedded and should have more workable terms in future, although expect adviser undertakings to get more aggressive. In BMI Healthcare No 1 the CAT approved of adviser undertakings that prohibited signatories from working for their clients in respect of relationships with health insurers for 3 years. 15
The CMA s approach a missed opportunity? The CMA s guidance indicate that the CMA will not attempt to alter the access to evidence under market and merger investigations in particular it does not intend to move to an access to the file type disclosure regime. See paragraphs 4.23-4.34 CMA6 Transparency and Disclosure: Statement of the CMA's Policy and Approach (January 2014) The CMA will follow the CC s guidance regarding disclosure of information in merger inquiries and market investigations including: the provision of aggregated summaries of submissions and responses to questionnaires rather than allowing access to primary evidence (even in data rooms) excision of confidential information (as determined by the CMA) from documents when the information excised is not material to the CMA s inquiries or its decision (as determined by the CMA) - i.e. if it is not relied on (as exculpatory material may well not be!) it can be excised See footnote 52 CMA6 Transparency and Disclosure: Statement of the CMA's Policy and Approach (January 2014) and paragraphs 9.11-9.15 of Chairman s Guidance on Disclosure of Information in Merger Inquiries, Market Investigations and Reviews of Undertakings and Orders accepted or made under the Enterprise Act 2002 and Fair Trading Act 1973 (CC7 (revised)) 16
Suggestions for reform (without changing the EA02) Introduce an access to the file type process in market and merger investigations In market or merger investigations access to the file could be granted after Working Papers are published and before the Provisional Findings to allow parties time to review the evidence and effect material change. Without this, qualitative primary evidence is likely to disappear from disclosure entirely under the current gist interpretation Routine engagement with CMA staff Meetings with staff are critically important. Much time, resource and aggravation is spared and critical misunderstandings addressed by meeting in person. Restricting disclosure and meetings risks a dialogue of the deaf via correspondence and litigation Abandon less useful transparency steps to free resources for access to the file Hearing summaries provide little useful information. Instead transcripts redacted by the parties would be less resource intensive and more informative. In the alternative confidential versions could be given to the parties, subject to confidentiality protections Putbacks could be streamlined, with a confidential version of the document given to each party for confidentiality claims after the document has been adopted. In practice putbacks add nothing to accuracy since they come too late to change the substance of the decision. They may assist in JR proofing the decision but that s quite a different purpose!. Inaccuracies could be dealt with more efficiently much earlier. Granting of access to the file would assist with this too. 17
Thank you 18