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Cite as: [2001] EWHC Admin 367
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Interbrew S.A. and Interbrew UK Holdings Ltd v. The Competition Commission and The Secretary of State for Trade and Industry [2001] EWHC Admin 367 (23rd May, 2001)
Neutral Citation Number: [2001] EWHC Admin 367
IN THE HIGH COURT OF JUSTICE CO/402/2001
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT LIST
Royal Courts of Justice
The Strand, London, WC2A 2LL
Wednesday 23rd May 2001
The Hon. Mr. Justice Moses
B E T W E E N:
(1) Interbrew S.A.
(2) Interbrew UK Holdings Ltd
Claimants
(1) The Competition Commission
Respondents
- - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - -
MR. KENNETH PARKER Q.C. and MR. DANIEL BEARD (instructed by The Treasury Solicitors) appeared on behalf of the First Respondents.
MR. DAVID ANDERSON Q.C. and MR. AIDAN ROBERTSON (instructed by The Treasury Solicitors) appeared on behalf of the Second Respondents.
As Approved by the Court
Crown Copyright ©
On 5 December 2000, the Competition Commission ("the Commission") reported to the Secretary of State for Trade and Industry that Interbrew S.A's ("Interbrew") acquisition of the brewing interests of Bass Plc ("Bass Brewers") could be expected to operate against the public interest. It recommended that Interbrew should be ordered to divest itself of the entire United Kingdom beer business of Bass Brewers. On 3 January 2001, the Secretary of State published the Report and announced that he had accepted the recommendation of the Commission. In this application Interbrew challenge the recommendation of the Competition Commission on the grounds that it and, in consequence, the Secretary of State, adopted a grossly disproportionate method of dealing with the anti-competitive consequences of the acquisition. Further, it contends that the procedure adopted by the Commission in reaching its conclusion as to the appropriate remedy, was unfair.
FACTS
Interbrew is a Belgium public company, the parent of a world-wide brewing group. It owns a number of major international beer brands, which include, Stella Artois. Its ownership of the Stella Artois brand is of particular significance. Stella Artois is one of the leading premium lagers sold in the United Kingdom. Before May 2000, Interbrew's only significant involvement in the United Kingdom beer market was as licensor of the Stella Artois brand to Whitbread Plc. The licence was originally entered into on 29 March 1977.
In May 2000 that licence had until 2018 to run. In that month, Interbrew acquired almost all the brewing business of Whitbread. After acquisition, the Stella Artois licence was treated as having lapsed, the licensor and licensee being under common control.
In June 2000 Interbrew UK Holdings Ltd., (the United Kingdom Company created especially for the purpose) agreed to buy Bass Brewers, the sale being completed in August 2000. Interbrew thereby acquired the brewing interests of the Bass Group and a 49.9% interest in a beer distributor called Tradeteam Ltd. The acquisition was not conditional on clearance by the United Kingdom competition authorities. It was not the understanding of the Competition Commission that Bass plc required that sale would not be conditional upon clearance by EC and UK competition authorities.
THE CONSEQUENCES OF THE MERGER
Before May 2000 the four leading brewers in the United Kingdom in terms of market share were Scottish and Newcastle (26%), Bass Brewers (23.4%), Whitbread (14.5%) and Carlsberg-Tetley (11.8%). The remaining 24.3% was distributed among a number of smaller brewers. On 6 July 2000 the acquisition of Bass Brewers was notified pursuant to the E.C. Merger Regulation 4064/89. On 22 August 2000, the European Commission cleared the merger so far as it related to markets outside the United Kingdom but, on the request of the Secretary of State, referred to the competent U.K. authorities that part of the merger which related to the supply of beer in the United Kingdom, pursuant to Article 9 of the E.C. Merger Regulations.
I shall have occasion to examine in greater detail the procedures adopted leading to the Commission's Report. In its report the Commission concluded that the merger would in effect lead to the creation of a duopoly between Interbrew and Scottish and Newcastle in most segments of the market and, therefore, the market as a whole. (see paragraph 2.120).
The Commission then considered the effects of the duopoly concluding that those effects would be expected to operate against the public interest. Its reasoning is summarised in paragraph 2.185:-
"The merger would strengthen Interbrew's market position, resulting in an effective duopoly between Interbrew and S & N; it would enable Interbrew and S & N to dominate the route to market to many retailers; and it would enhance Interbrew's ability to price discriminate. We conclude that the merger would have the following adverse effects in Great Britain:
(a) raise net wholesale and, ultimately retail prices;
(b) lead to increased non-price competition (in the form of advertising and marketing) resulting in increased areas to entry and expansion and a somewhat greater degree of beer rationalisation than would otherwise have been the case;
(c) allow Interbrew and S & N to promote their own brands at the expense of the competing brands;
(d) make the independent free trade and independent wholesalers less competitive"
Interbrew do not agree with the Commission's conclusion that the effects of a duopoly would be adverse to the public interest. On the contrary, it has contended and persists in its view that the merger will be beneficial. Nonetheless it accepts that it cannot challenge those conclusions on any public law ground. It accepts that the Commission was entitled to reach those conclusions. However, it does challenge the Commission's conclusion as to the remedy, which was recommended to cure the perceived evil.
THE COMMISSION'S RECOMMENDATIONS
The Commission had proposed three behavioural remedies consisting of undertakings from Interbrew as to the trading practices, which would be followed by the merged group. They rejected the possibility of such undertakings as being an insufficient remedy and difficult to enforce.
The Commission then turned to six possible "structural" remedies, two of which are significant:-
(1) the divestment of Interbrew's interest in Whitbread which would include the pre-merger licence rights with respect to Stella Artois;
(2) the divestment of Interbrew's interest in Bass Brewers.
The Commission was divided as to the merits of these two structural remedies. Mr. Richmond favoured the first. His three colleagues preferred the second. The crucial passage in the Report is as follows:-
Divestment of WBC
"2.209. We believe that for divestment of WBC to be an effective remedy, it would need to include the pre-merger licence rights with respect to Stella Artois, which ran until 2018, we were told, and which account for some ["] per cent of the profits of the business. Without the rights to Stella Artois, WBC would not be a viable stand-alone business, nor would it be an attractive proposition for another brewer to purchase. Nor were we able to give brands to WBC from the portfolio of Bass Brewers that would compensate for the loss of Stella Artois. The divestment of WBC without Stella Artois would not, therefore, allay the adverse public interest effects.
2.210. Interbrew strongly opposes the sale of Stella Artois. It told us that one of the main drivers behind the acquisition of WBC was to regain control of the Stella Artois brand. Interbrew ´seriously values' the strategic and financial benefits of reuniting the UK rights to Stella Artois with those in the rest of the world. A forced sale would be such an extreme measure that Interbrew would be forced to reassess its strategy and investments in the market. See paragraph 5.234.
2.211. One of us, Mr. Richmond, believes that there are advantages to Interbrew's ownership of Bass Brewers that arise from its commitment to local brands and its focus on brewing alone. He believes that the divestment of WBC with the rights to Stella Artois would be a sufficient remedy to the adverse public interest effects, subject to the following undertakings from Interbrew:
(a) the grant of a new licence for the rights to Stella Artois on similar terms and conditions to those pertaining prior to the merger with WBC; and
(b) that these rights will continue in the event of a future change of ownership of WBC during the period of the licence; and, furthermore,
(c) that any material changes in such rights will require the prior approval of the DGFT.
2.212. Mr. Richmond believes that such a divestment would result in the following market structure in brewing: S&N with 26 per cent, Interbrew with 24 per cent, WBC with 10 per cent (assuming the loss of the Heineken brands; with the Heineken brands it would have 14.5 per cent), and Carlsberg-Tetley with 12 per cent. This would return the distribution of market shares to close to what they were before the merger. Subject to the Heineken and Murphy's licence arrangements, WBC would comprise three breweries, a distribution platform, and a supply agreement with Whitbread. This would make WBC a viable business and a strong competitor, in Mr. Richmond's view.
2.213. In addition, Mr. Richmond believes that WBC could be a possible merger or alliance partner for another international brewer seeking to develop a UK base, in which case it would become a more formidable competitor and this would render less effective a potential duopoly between Interbrew and S&N.
2.214. Three of us are not convinced that this would be a sufficient remedy. We are not convinced that any undertakings in respect of the Stella Artois licence would be effective. Moreover, without Stella Artois in its portfolio, Interbrew would be forced to develop another premium lager, possibly Grolsch. We do not believe that Interbrew would use a licensed brand (ie Grolsch) to compete actively with a brand that it owns but is licensed to a competitor (ie Stella Artois), and on which it was receiving a stream of royalties (see paragraph 3.20). We think separating the management of a brand from its ownership will undermine the long-term health of the brand in a market where the brand manager and owner are both operating and where brands are of increasing importance. Furthermore, we are concerned that Interbrew would use its position as owner of the Stella Artois brand to persuade WBC not to compete as vigorously against Grolsch as it otherwise might do. Finally, we believe that WBC on its own would be a weak competitive force (being very reliant on Stella Artois for sales and profits) and an unattractive platform for other brewers to use as a vehicle for large-scale entry into the market."
In conclusion, the majority considered whether it would be proportionate to require the divestment of about 75% of Interbrew's business in the U.K. At paragraph 2.219 they said:-
"We would have recommended another remedy, or combination of remedies, if we were satisfied that to do so would have remedied the adverse effects of the merger. However, we believe that no individual remedy, or combination of remedies, would have this effect. Accordingly the majority recommend that Interbrew should be required to divest the U.K. business of Bass Brewers to a buyer approved by the D.G.F.T."
Interbrew challenge the reasoning at 2.214 on two bases:-
(a) The reasoning at 2.214 lacks cogency. It makes unjustifiable assumptions not based on the evidence.
(b) In reaching its conclusion the Commission failed to take into account the disproportionate effect of divestment of Bass Brewers. On the contrary, the Commission specifically but erroneously regarded the losses, which would be occasioned on divestment of Bass Brewers as irrelevant (see paragraph 2.193 of the Report).
The Relevant Legislation
Notification to the European Commission was made pursuant to the EEC Merger Regulation (Council Regulation (EEC) 4064/89). The Regulation was amended in October 1997 and corrected on 7 January 1998. The preamble reads, in part:-
"Having regard to the treaty establishing the European Economic Community, and in particular, Articles 87 and 235 thereof.....
(1) whereas, for the achievement of the aims of the Treaty establishing the European Economic Community, Article 3(f) gives the Community the objective of instituting "a system ensuring that competition in the common market is not distorted";
(2) whereas this system is essential for the achievement of the internal market by 1992 in its further development;
(3) whereas the dismantling of internal frontiers is resulting and will continue to result in major corporate reorganisations in the community, particularly in the form of concentrations;
(4) whereas such a development must be welcomed as being in line with the requirements of dynamic competition incapable of increasing the competitiveness of European industry, improving the conditions of growth and raising the standard of living in the community;
(5) whereas however, it must be ensured that the process of re-organisation does not result in lasting damage to competition; whereas community law must therefore include provision governing those concentrations which may significantly impede effective competition in the common market or in a substantial part of it."
Article 1 identifies those concentrations which have a Community dimension having regard to aggregate world-wide turnover and aggregate community wide turnover. Article 4 provides for prior notification of concentrations. Article 7.1 prohibits a concentration being put into effect before notification or within the first three weeks thereafter. Thereafter the Commission may continue the suspension of a concentration. This provision is to be contrasted with the domestic provisions which require no suspension before a merger takes place. Article 9 provides for referral to the competent authorities of the Member States:-
"9.2 within 3 weeks of the date of receipt of the copy of the notification, a Member State may inform the Commission which shall inform the undertakings concerned that:
(a) a concentration threatens to create or to strengthen a dominant position as a result of which effective competition would be significantly impeded on a market, within that Member State, which presents all the characteristics of the distinct market.
........
3. if the Commission considers that, having regard to the market for the products or services in question and the geographical reference market within the meaning of paragraph 7, there is such a distinct market and that such a threat exists either:
(a) it shall itself deal with the case in order to maintain or restore effective competition on the market concerned, or
(b) it shall refer the whole or part of the case to the competent authorities of the Member States concerned with a view to the application of that state's national competition law.
......
8. in applying the provisions of this Article, the Member States concerned may take only measures strictly necessary to safeguard or restore effective competition on the market concerned."
Thus the recommendations of the Competition Commission and the Order of the Secretary of State under Section 73 of the Fair Trading Act 1973 ("FTA") must satisfy the test that any remedy must be limited to that which is strictly necessary to safeguard or restore effective competition.
The Commission's obligation is to investigate and report upon any merger situation qualifying for investigation referred by the Secretary of State (see Section 5 of the FTA). Section 72 details the Commission's obligations and powers in making a report. Section 72(1) provides:-
"In making their report on a merger reference, the Commission shall include in it definite conclusions on the questions comprised in the reference, together with -
(a) an account of their reasons for those conclusions such a survey of the general position in respect of the subject matter of the reference, and of the developments which have led to that position
(b) .............
as in their opinion are expedient for facilitating a proper understanding of those questions and of their conclusions.
(2) Where on a merger reference the Commission finds that a merger situation qualifying for investigation has been created and that the creation of that situation operates or may be expected to operate against the public interest....the Commission shall specify in their Report the particular effects, adverse to the public interests, which in their opinion the creation of such situation....have or may be expected to have and the Commission:-
(a) shall, as part of their investigations, consider what action (if any) should be taken for the purpose of remedying or preventing those adverse effects and
(b) may, if they think fit, include in their report recommendations as to such action."
On completion of the investigation, the Commission reports to the Secretary of State. A copy of the report is provided to the Director General of Fair Trading to advise the Secretary of State. Thereafter, the Secretary of State lays the report before Parliament pursuant to Section 73(1). If the Commission reports that the merger operates or may be expected to operate contrary to the public interest, Section 73(2) provides:-
"....the Secretary of State may by Order made by statutory instrument exercise such one or more of his powers specified in Parts I and II of Schedule 8 to this Act as he may consider a requisite to exercise for the purpose of remedying or preventing the adverse affects specified in the Report as mentioned in the preceding section; and those powers may be so exercised to such extent and in such manner as the Secretary of State considers requisite for that purpose."
The Secretary of State has, pending the decision of the court, sought draft undertakings from Interbrew to effect the disposal of Bass. If acceptable undertakings cannot be obtained, the Secretary of State may make an order under Section 73(2). But if he does so, he has to give notice of intention to others including Interbrew and consider any representation they wish to make (see Section 91(1) and Schedule 9). Thereafter any draft order would have to be laid before Parliament and could only be approved by affirmative procedure (see Section 91(1)).
THE TEST OF PROPORTIONALITY
Since Article 9(8) imposes a requirement only to take those measures which are strictly necessary to safeguard or restore effective competition, it is plain that the Commission and The Secretary of State are under a duty to act in a proportionate manner. Such an obligation is reinforced by the provisions of Article 1 of the First Protocol to the European Convention on Human Rights. Article 1 of the First Protocol provides:-
"Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of the State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."
There was some dispute, particularly between the Secretary of State and Interbrew, as to the extent to which there had been interference with the right to peaceful enjoyment of possessions. But since the Secretary of State has throughout accepted, as did the Commission, that the principle of proportionality applied, it seems to me unnecessary to reach any conclusion as to the effect of the Secretary of State's submissions that there was only limited interference with property.
Moreover, there appeared to be little dispute between the parties as to the content of the test of proportionality. Firstly, the measure adopted must be the least restrictive (see Article 9(8) of the Merger Regulation). This was acknowledged by the Commission in its Report at 2.219. Secondly, in the context of the second basis of challenge to the reasoning of the Commission, Mr. Sumption QC, for Interbrew, placed particular emphasis on another aspect of the test of proportionality, namely the requirement that the measure should not be disproportionate in the sense that the value of the remedy which the measure sought to achieve should not be exceeded by the burden imposed upon the person against whom the remedy was directed. The question the Commission had to ask was whether the remedy was "worth the candle". In cases concerning Article 1 of the First Protocol, the ECHR looks for a "reasonable relationship of proportionality between the means employed and the legitimate objectives pursued". (See e.g. James -v- United Kingdom [1986] 8 ECHRR). In that case the Court said of the requirement:-
"This latter requirement was expressed in other terms in the Sporrong & Lonnroth judgment by the notion of the fair balance that must be struck between the demands of the general interest of the community and the requirements of the protection of the individuals fundamental rights. The requisite balance will not be found if the person concerned has had to bear an individual and excessive burden. Although the Court was speaking in that judgment in the context of the general rule of peaceful enjoyment of property enunciated in the first sentence of the first paragraph, it pointed out that the search for this balance is reflected in the structure of Article 1 as a whole". (See paragraph 50).
The test is echoed in the decisions of the European Court of Justice as to the principle of proportionality. In R -v- MAFF & Secretary of State for Health ex parte FEDESA [1990] ECR 1-4023, the Court said:-
"The court has consistently held that the principle of proportionality is one of the general principles of community law. By virtue of that principle, the lawfulness of the prohibition of an economic activity is subject to the condition that the prohibition measures are appropriate and necessary in order to achieve the objectives legitimately pursued by the legislation in question; when there is a choice between several appropriate measures, recourse must be had to the least onerous, and the disadvantages caused must not be disproportionate to the aims pursued." (Para 13, 1-4063).
In De Freitas -v- Ministry of Agriculture [1999] 1 AC 69, in giving the opinion of the Board, Lord Slynn adopted a three-fold analysis from Zimbabwe:-
"Whether:
(i) a legislative objective is sufficiently important to justify limiting the fundamental right;
(ii) the measures designed to meet the legislative objective are rationally connected to it; and
(iii) the means used to impair the right or freedom is no more than is necessary to accomplish the objective." (page 80).
I detected no real dispute as to this analysis.
THE STANDARD OF REVIEW
There was, however, considerable dispute as to the intensity with which this Court should review the decision. The Applicant contended that the review should be intense. Even if the right enshrined in Article 1 of the First Protocol is not as fundamental as those protected in earlier provisions of the Convention, it is, nevertheless, important. Furthermore, the restrictions imposed upon Interbrew amounted to a restriction upon its right of establishment in the United Kingdom conferred by the combined effect of Articles 43(ex 52) and 56 (ex 73B) of the Treaty. Accordingly, the Court is required to scrutinise with intensity the justification for the interference although Mr. Sumption QC accepted that the role of the Court remained supervisory. It will "only intervene where the decision fell outside the range of responses open to a reasonable decision maker" (see R -v- Secretary of State for the Home Department ex parte Mahmood [2001] 1 WLR 840 at paragraph 37). Although the Court's role is supervisory it nevertheless imposes a test lower than that of Wednesbury irrationality.
These submissions as to the approach this Court should adopt were challenged by both the Commission and the Secretary of State. The correct test, so they contended, was that which would have been applied by the European Commission had it not referred the merger to the United Kingdom Competition Commission. The European Court of Justice affords a wide margin of appreciation in questions of economic policy and evaluation. The approach of the Court is to examine whether a manifest error of appraisal can be discerned. In Upjohn -v- Medicines Licensing Authority [1999] ECR 1/223 the European Court of Justice said:-
"34. According to the Court's case law, where a Community authority is called upon, in the performance of its duties, to make complex assessments, it enjoys a wide measure of discretion, the exercise of which is subject to a limited judicial review in the course of which the Community judicature may not substitute its assessment of the facts for the assessment made by the authority concerned. Thus, in such cases, the Community judicature must restrict itself to examining the accuracy of the findings of fact and law made by the authority concerned and to verifying, in particular, that the action taken by that authority is not vitiated by manifest error or misuse of powers and that it did not clearly exceed the bounds of its discretion ...".
This approach is similar to the approach of the United Kingdom authorities which acknowledge a wide margin of appreciation in implementing social and economic policies.
Additionally, the Secretary of State contends the right of freedom of establishment is not engaged in this case. The competition laws in issue in this case, just like laws in relation to planning or employment, do not regulate access to the United Kingdom but rather regulate economic activity within the market, without discrimination.
These issues may be important. There may be cases where it is essential that the Court identifies the correct approach. The quality of the argument excited a desire to resolve the controversy. It is disappointing, therefore, for me to say that I do not think it necessary to resolve the conflict. The challenge to the reasoning was that it lacked cogency and any reasonable foundation. The reasoning is also challenged because it failed to take into account the balancing test inherent in the test of proportionality. The Commission and the Secretary of State respond by submitting that the reasons are intelligible, cogent and sufficient. The balancing test, they say, had no part to play in the instant case. These arguments will not turn upon the approach I should adopt. In the instant case it does not seem to me that my ruling depends upon the extent to which I think those reasons lack cogency. If the reasons make no sense and are without foundation then I should so rule.
THE COGENCY OF THE REASONING
The Court's submission under this head, advanced by Interbrew, is that the reasoning does not "stack-up". The reasoning contains, submits Mr. Sumption QC, a series of contradictions and non-sequiturs combined with assumptions not based on the evidence and contrary to the probabilities. The task of the Commission was to recommend a remedy which would be effective in avoiding the adverse effects foreseen by the Commission as a result of the duopoly. Its reasoning in rejecting the effectiveness of a divestment of Whitbread with licence rights to market Stella Artois are, so it was submitted, unsustainable. At the heart of that reasoning was the unfounded assumption that the remedy of divestment of Whitbread with Stella Artois would not create an effective third player in the market because Interbrew had a dual capacity in that market: as owner of Bass but also as licensor of Stella Artois.
The starting point of Interbrew's challenge was that the remedy was not properly directed at the duopoly. The adverse effects foreseen by the Commission arose from the duopoly. The duopoly was created as a result of acquisition of both Bass and Whitbread. Interbrew had no brewing capacity in the United Kingdom before it acquired Whitbread and no presence save as licensor of Stella Artois. If it had acquired Bass and not Whitbread, so it is submitted, it is difficult to see that there would have been any impact on competition in the United Kingdom. There would have been the same number of brewers. The acquisition of both reduced the number of major brewers from four to three. This brought about a situation in which Interbrew and Scottish and Newcastle controlled two thirds of the market and a very high proportion of distribution capacity. In principle, therefore, the divestment of one, either Whitbread with Stella Artois or Bass would cure the duopoly and the damage to the market foreseen by the Commission. The fact that the duopoly would be avoided by the divestment of Whitbread serves to show that the considerations which led the Commission to recommend divestment of Bass were not designed to remedy the duopoly but to gain an additional advantage distinct from the problem created by the effects of that duopoly. The distinct or discrete problem was that which the Commission believed was created by Interbrew's dual capacity as owner of Bass and licensor of Stella Artois. But that problem and its remedy was not directed to removal of the duopoly.
Mr. Parker QC, on behalf of the Commission, supported by the Secretary of State, contended that there was a legislative presumption in favour of the divestment of Bass. He referred to Section 75A requiring notice to be given to the Director General of Fair Trading in advance of a merger situation. He drew attention to the power of the Secretary of State to prohibit integration where such integration might prejudice the reference and impede taking action thereafter (Section 74). Such an order was made on 21.9.2000 in this case.
In my judgment there is no such legislative presumption. The powers exercisable are those set out in Schedule 8 paragraphs 14 and 15:-
"14. An order may provide for the division of any business by the sale of any part of the undertaking or assets or otherwise (for which purpose all the activities carried on by way of business by any one person or by any two or more inter connected bodies corporate may be treated as a single business), or for the division of any group of interconnected bodies corporate ...".
Paragraph 15 includes within the meaning of a division of a business:-
"Any part of any undertaking or assets concerned or other means, have enterprises which are under common control otherwise than by reason of there being enterprises of interconnected bodies corporate."
The only requirement is that the measure taken should be that which is least restrictive.
Nonetheless, I do not think it assists to hypothesise as to what would have happened had Interbrew acquired Bass but not acquired Whitbread. Even if one assumes that no question of duopoly would have arisen and there was no reference to the Commission, the question for the Commission was how to restore effective competition to the market. In considering the least restrictive remedy, the Commission had to consider whether a divestment of Whitbread would afford an effective remedy. That effectiveness turned on a judgment as to the effect of the dual capacity of Interbrew on the market. The Commission was, in my view, entitled to focus upon an effective means of avoiding the consequences of the duopoly. Divestment of Whitbread with Stella Artois might dismantle the duopoly but would not necessarily restore effective competition, unless Whitbread with Stella Artois was viable and independent. The Commission concluded Whitbread with Stella Artois would not have those qualities. The reasons for that conclusion were subject to further attack by Interbrew.
DIVESTMENT OF WHITBREAD AS AN EFFECTIVE REMEDY
The Commission took the view that the relationship of Interbrew as licensor of Stella Artois would not leave Whitbread with the independence necessary to compete with an undivested Bass.
The Commission's three reasons hinged on the effects of that relationship. Firstly, it took the view that Interbrew might pull its punches in competing with Whitbread because of its ownership in respect of Stella Artois. Secondly, Whitbread for its part might be lent upon by Interbrew as licensor to stop it competing as vigorously as it might otherwise. Thirdly, Whitbread, because of its reliance on Stella Artois, would prove an unattractive vehicle to other brewers for large scale entry into the market.
Mr. Sumption QC described the first reason as "baffling". The Commission appeared to be saying that if Interbrew used Grolsch as a competitor it would not seek to achieve success in respect of a brand which Interbrew itself licensed over the success of a brand which it owned. But, as he points out, the Commission itself accepted that there is no warrant for assuming that Grolsch would be used as a competitor ("possibly Grolsch, see 2.214"). Mr. Sumption QC argues that it cannot be suggested that the mere fact that Interbrew has an interest in two premium larger brands is inherently uncompetitive. After all, the Commission accept that the starting point is that Interbrew would wish to compete with Whitbread. If that is so there is no basis for the assumption that it would pull its punches.
The second reason is the converse of the first. It depends, argued Mr. Sumption QC, on a wholly unwarranted view of the terms of the licence. Yet the Commission had no copy of the licence. It asked for it at a very late stage but did not pursue this request and the licence was never supplied (see first witness statement of Hugo Powell Chief Executive of Interbrew paragraph 8.5). Under the licence the licensor has no relevant right of interference whatever. If Whitbread sought not to compete vigorously it would be in breach of its obligation under Clause 4:-
"(a) Whitbread shall throughout the continuance of this agreement use its best endeavours to sell and increase the sale of Stella Artois."
There is no relevant power to terminate under Clause 12. Moreover, it would, should the Commission have wished, be possible for the licence to cater for any of the anxieties which they expressed. The second reason advanced was, in short, a bland assertion untutored by examination of the licence itself.
The third reason was also challenged. There was, it was said, no basis for saying that Whitbread would be unattractive. Although it was more valuable to Interbrew than to others because of its ownership of Stella Artois it was no weaker after divestment than before Interbrew's acquisition. Interbrew's assessment response estimated a price of between £250m to £300m (see page 8).
In short, submits Mr. Sumption QC, Interbrew are entitled to a properly reasoned choice of a remedy which would have such disastrous financial consequences.
To remove the damaging consequences of the duopoly the Commission's remedy had to be such as to provide an effective competitor. Such a competitor had to be independent and viable. The reasoning contained in paragraph 2.214 goes to the relevant question of the independence of Whitbread and the likely extent of competition between Interbrew and Whitbread with a licence to produce Stella Artois. The search for a viable and independent business able to complete effectively is consistent with the approach of the European Commission demonstrated in Commission Notice on remedies acceptable under Council Regulation 4064/98 (2001/C68/03). The notice states:-
"III. TYPE OF REMEDY ACCEPTABLE TO THE COMMISSION
1. Divestiture
13. Where a proposed merger threatens to create or strengthen a dominant position which would impede effective competition, the most effective way to restore effective competition, apart from prohibition, is to create the conditions for the emergence of a new competitive entity or for the strengthening of existing competitors by divestiture.
Viable business
14. The divested activities must consist of a viable business that, if operated by a suitable purchaser, can compete effectively with the merged entity on a lasting basis. Normally a viable business is an existing one that can operate on a stand-alone-basis, which means independently of the merging parties as regards to supply of input materials or other forms of co-operation other than during a transitory period.
15. In proposing a viable business for divestiture, the parties must take into account the uncertainties and risks relating to the transfer of a business to a new owner. These risks may limit the competitive impact of the divested business, and, therefore, may lead to a market situation where the competition concerns of the Commission will not necessarily be eliminated. ...
Suitable Purchaser
19. ... The two elements of the viable business and the suitable purchaser are thus inter-linked. The potential of a business to attract a suitable purchaser is, therefore, an important element of the Commission's assessment of the appropriateness of the proposed commitment."
An illustration of this policy in practice can be seen in the decision relating to the merger of Kesko and Tuko (Commission decision of 19 February 1997 OJL 174/47). Kesko was ordered to divest the business of Tuko:-
"To a purchaser which must be a viable existing or prospective competitor, independent of and unrelated to the Kesko Group and possessing the financial resources and proven expertise enabling it to maintain and develop the divested business as an active and competitive force in competition with Kesko's daily consumer goods business ... (Article 1)".
The Competition Commission's search for an effective challenge to the duopoly by the creation of a viable effective third force in the market was consistent with the approach of the European Commission. Only a viable independent entity would be effective in eliminating the consequences of the duopoly. The majority's reasoning focused upon its fear that Whitbread with the Stella Artois brand licensed from Interbrew would not be truly independent.
The first reason was based not merely on the possibility that the rival premium lager to be developed would possibly be Grolsch. It also depended upon the fact that Interbrew was receiving "a stream of royalties". The importance of Stella Artois to Interbrew should not be underestimated. The Commission was entitled to take the view that Interbrew would not wish to undermine that brand. That view was reinforced by Interbrew's own reaction to the divestment of Whitbread. At 2.210 the Commission reported:-
"Interbrew strongly opposes the sale of Stella Artois. It told us that one of the main drivers behind the acquisition of WBC (Whitbread) was to regain control of the Stella Artois brand. Interbrew "seriously values" the strategic and financial benefits of reuniting the UK rights to Stella Artois with those in the rest of the world. The forced sale would be such an extreme measure that Interbrew would be forced to reassess its strategy and investments in the UK market."
The first reason given by the Commission seems to me to be clear: there was a risk that Interbrew would seek to avoid vigorous competition against Stella Artois but would focus its competition against other brands. At the oral hearing on 15 November 2000 Mr. Powell was asked about the development of Grolsch which Interbrew licensed. Mr Powell said:-
"In the matter of Grolsch we can provide to you, if it is helpful, correspondence from me introducing us as a newcomer to the Grolsch business saying, "we think your brand is important. We welcome the chance of a partnership. We think that it can be managed in a complimentary way with Stella Artois and that is what we are planning." (page 83).
There was, accordingly, an evidential basis for the fear that Interbrew would not direct competition with the same vigour against Stella Artois as it would against other brands.
The reference to Grolsch merely reinforced the Commission's fears. If Grolsch was used there would be a further reduction in incentive for Interbrew to compete as vigorously as it might otherwise do since Interbrew was merely licensee of Grolsh. But, as I have said, the first reason did not depend upon a view that Interbrew would use Grolsch as the competitor against Stella Artois.
The second reason is merely the converse of the first. The Commission feared that Interbrew might use its position as owner of the Stella Artois brand to persuade Whitbread that it was not in its best interests to compete vigorously against a rival brand.
Although the Commission referred to Grolsch in its second reason, its concern cannot have depended merely on the possibility that Grolsch would be used as a competitor against Stella Artois. If Interbrew competed against brands other than Stella Artois there would be reciprocal benefits for Stella Artois. Mr. Parker QC drew attention to provisions of the licence which refer to co-operation between Whitbread and Artois (at the time of the licence the owner of Stella Artois) particularly at Clause 4(d) and (f). I do not think it open to the Commission to rely upon provisions of a licence which they had not seen and to which they made no reference in their report. Nevertheless their reasoning did not depend upon the provisions of the licence but rather upon their judgment as to the effect on competition which flowed from Interbrew's dual capacity as owner of Bass and licensor of Stella Artois. In their judgment, Stella Artois' viability as a competitor would be adversely affected by Interbrew's conflicting incentives flowing from its dual capacity.
The third reason again stems from Interbrew's dual capacity. It did not depend upon the price which Whitbread with Stella Artois might fetch on the market but upon an economic judgment that an entrant into the market would not find Whitbread with Stella Artois attractive, whatever the price. Whitbread would be dependant on a resource licensed from a major competitor.
In my judgment these reasons do "stack-up". I do not think that the reasoning lacks cogency. It was a matter of commercial and economic judgment as to whether Whitbread with Stella Artois would lack sufficient viability and independence to eliminate the consequences of the duopoly. The Commission was entitled to take the view that the dual capacity of Interbrew would inhibit competition of sufficient vigour to eliminate the evils following from the duopoly. Whether Whitbread would be a viable business and a strong competitor was a matter upon which more than one view could be held. Mr. Richmond took the opposite view. But the majority was entitled to take the view that the undertakings to which Mr Richmond referred (see 2.211) would be insufficient. After all, it had already rejected behavioural remedies as being insufficient and difficult, if not impossible, to enforce (2.195).
I note that the Director General of Fair Trading, who has great expertise in this field, agreed with the conclusions of the majority. He said:-
"I concur with the majority view that the divestment of WBC would only be capable of addressing the adverse effects of the merger if it were to include the continuing rights to the Stella Artois brand. However this would leave Interbrew in direct competition against a brand that it owned and from the success of which it would directly benefit. I find this an unattractive proposition. I agree with the majority of the group that WBC's dependence on the Stella Artois brand might be expected to lead to a reduction in competition with Interbrew. Consequently I do not believe that such a remedy would, in practice, address the adverse effects of the merger.
20. I therefore agree with the majority of the group that the only practicable and feasible remedy would be to require Interbrew to divest itself of the UK business of Bass Brewers. I accept there is a question of proportionality to be considered. But since this is the only remedy that is capable of addressing the adverse affects of the merger, I agree with the majority of the CC Group that this divestment is proportionate." (see the submission of the DGFT to the Secretary of State dated 18 December 2000).
There is no difference in the reasoning of the Director General and the Competition Commission. The reasoning of the Commission explains with sufficient clarity and cogency why it took the view that Whitbread and Stella Artois would not be an effective remedy. Accordingly, I reject the challenge based on lack of cogency of reasoning.
BALANCE
The second challenge to the reasoning is founded on the view of the Commission expressed at (2.193) that the costs which Interbrew would incur if required to dispose of Bass were irrelevant. The reasoning of the Commission was described by Mr. Sumption QC, with a bluntness designed to expose the Commission's error, as a "serve you right" argument.
I agree with Mr Sumption QC that if a question of balance arose then the effect on Interbrew would be relevant. It is true, as the Commission recorded, that Interbrew decided to purchase Bass unconditionally, although, under the terms of Bass' tender, it had no choice. But the Commission could not fail to take into account, if it was relevant, that an order to divest itself of Bass would have a substantial financial impact upon Interbrew. Bass was its largest asset within the United Kingdom. It does not matter whether one looks at the losses on sale or the loss of opportunity costs which would be bound to be grave if the largest asset was sold.
However, in the instant case, I do not think that a question of balance arose. There will be cases where it is necessary to consider whether a remedy is disproportionate in the sense that the advantages to be gained are outweighed by the detriment to the one against whom the measure is directed. But in this case no such issue required consideration. This was not a case where the Commission took the view that the divestment of Whitbread with Stella Artois would be an effective remedy but that the divestment of Bass Brewers would be more effective. Rather, the majority of the Commission took the view that the divestment of Whitbread with Stella Artois would not be an effective remedy for the reasons it gave at 2.214. In those circumstances it availed Interbrew nothing to contend that the remedy was disproportionate. No question of weighing the advantage of divestment of Whitbread with Stella Artois against the detriment to Interbrew of the divestment of Bass arose. In the judgment of the majority of the Commission there were no advantages at all to be gained from the divestment of Whitbread with Stella Artois. In the majority view only one remedy would be effective namely the divestment of Bass. Divestment of Bass was regarded as strictly necessary and there was no other effective remedy available. The Commission made it clear at 2.219 of its report that if another effective remedy had been available it would have recommended it. Accordingly, I reject the second challenge.
PROCEDURE
Interbrew complains that it was given no opportunity to deal with the crucial ground upon which the Commission recommended a divestment of Bass Brewers. It was given no fair opportunity to deal with the reason why the Commission took the view that Whitbread with Stella Artois would not be a viable and independent competitor such as to remedy the consequences of the duopoly. Before dealing with this submission I should outline the facts upon which it is based.
THE PROCEDURE ADOPTED BY THE COMMISSION
Interbrew did not see the European Commission's report of its decision to refer the case to the United Kingdom Competition Authorities pursuant to Article 2.9 of the Merger Regulation 4064/89 dated 22nd August 2000 until these proceedings. But it did see the press release of the same date which stated:-
"In particular the UK considered that the combined strength of Interbrew and Scottish and Newcastle could give rise to the risk of a harmful duopolistic outcome."
On 16th October 2000 there was an initial hearing before the Competition Commission. On 23rd October 2000 the Competition Commission wrote to Interbrew raising 29 public interest issues under three heads, four possible adverse effects of the merger and nine possible remedies. The letter stated:-
"1. ... The Group will wish to discuss with you both public interest issues which are relevant to the question of whether the merger operates, or may be expected to operate, against the public interest, and a range a possible remedies. Professor Geroski made it clear that the Group will form their view as to whether or not the merger is against the public interest after they have considered further evidence from yourselves and other interested parties. The fact that possible remedies will be discussed at the hearing in no way implies that the Group have reached a view on the merger.
2. This letter sets out the public interest issues the Group will wish to raise at the hearing, together with a set of possible adverse public interest effects and remedies to those effects. Should further issues arise, you will be notified before the hearing. The letter also identifies some of the key facts that appear relevant to our consideration of the merger and the principal concerns expressed by interested parties."
Attached to that letter was an issues and remedies statement. It stated:
"An issues letter is always sent before the Competition Commission has reached any conclusions and is designed to highlight those matters which have been identified by the investigating Group for further consideration, and to ensure nothing has been missed."
On 7th November 2000 Interbrew submitted comments on the various issues and possible adverse effects and remedies. Of the possible remedy of divestment of Bass business in its entirety Interbrew said:-
"Divesting the Bass business in its entirety would leave a weakened Whitbread. Having divested its retail estate Whitbread would be left without either the benefit of the profits from vertical integration or larger British sibling and the more cost effective distribution network that Bass could have provided. This weakened Whitbread would be less able to support its many smaller (largely ale) brands; this would almost certainly lead to a reduction in brand diversity in the UK and possibly also to a more rapid decline in the British ale market."
Interbrew accepted the sale of the Whitbread assets without the Stella Artois or Heineken brands would not constitute a viable stand alone business (see page 100). Of the remedy to divest the Whitbread business with rights to Stella Artois it said:-
"Divesting Whitbread in its entirety including the Stella Artois rights would represent such an extreme penalty for Interbrew that it would force us to entirely reassess our investment and strategy in the British market. ...
* Interbrew seriously values the strategic and financial benefits reuniting the UK rights to Stella Artois with those in the rest of the world. Other owners of the brand would not have the same incentive to support the brand, and while benefiting from the strong Stella Artois brand, would be unlikely to invest in the growth of the UK premium larger segment to the same extent." (page 99).
There were two hearings following the initial hearing before the Commission, the first on 15th November 2000 and the second on 20th November 2000. At neither of those hearings did the Commission raise the question of the viability of Whitbread with the Stella Artois licence, having regard to the dual capacity of Interbrew as owner of Bass and licensor of Stella Artois.
UNFAIRNESS
There can be no doubt but that the Commission owed a duty of fairness in conducting its investigation as to the merger. The content of the duty will vary from case to case but generally it will require the decision maker to identify in advance areas which are causing him concern in reaching the decision in question (see e.g. R -v- The Home Secretary ex parte Fayed [1998] 1 WLR 763 at 773H to 774A). Where Convention rights are at stake those adversely affected should be involved in the decision making progress to a degree sufficient to provide them with the "requisite protection of their interests." Absent such participation the interference will not be regarded as necessary (see McMichael -v- United Kingdom at paragraph 87 [1995] 20 EHRR 205 (a case concerning Article 8). The jurisprudence of the European Court of Justice is to like effect:-
"Any person who may be adversely affected by a decision should be placed in a position in which he may effectively make his views known, at least as regards the matters taken into account by the Commission as the basis for its decision."
(Eyckeler and Malt AG -v- Commission [1998] ECR II-402 at paragraph 78).
The flexibility of the requirement of fairness in the context of an investigation by the Monopolies and Mergers Commission has been the subject of judicial comment in the United Kingdom. In Hoffman-La Roche -v- The Secretary of State for Trade and Industry [1975] AC 295 Lord Diplock said:-
"The Commission makes its own investigation into facts. It does not adjudicate upon a lis between contending parties. The adversary procedure followed in a court of law is not appropriate in its investigations. It has a wide discretion as to how they should be conducted. Nevertheless, I would accept it is the duty of the Commissioners to observe the rules of natural justice in the course of their investigation - which means no more than they must act fairly in giving to the person whose activities are being investigated reasonable opportunity to put forward facts and arguments in justification of his conduct of those activities before they reach a conclusion which may affect him adversely." (see page 368).
In R -v- MMC ex parte Elders [1987] 1 WLR 1221 Mann J referred to the flexibility of the demands of fairness:-
"There is thus no set of rules of fairness which is applicable to all investigative procedures. ... What is fair in relation to a particular process, and a particular situation which is subject to that process, is for determination by the Court."
In R -v- MMC ex parte Matthew Brown [1987] 1 WLR 1235 Macpherson J appeared to take the view that the test of whether the procedure followed was fair was simply one of Wednesbury unreasonableness. The Commission do not, rightly, adopt that approach but draw attention to the views of Collins J in R -v- MMC ex parte Stagecoach Holdings (judgment 5 July 1996) in which he said:-
"I entirely accept that the Court will be slow to intervene (in procedural matters). This is because regard must be had to the nature of the MMC and the knowledge that having directed itself properly on the requirements of fairness it will be unlikely that nonetheless it will be unfair. As Lloyd LJ said at page 184D (of R -v- Take-over Panel ex parte Guinness PLC [1991] QB 146) the Court will give great weight to the tribunal's own view of what is fair. No doubt, this will mean that in the vast majority of cases the Court will be unlikely to regard what the MMC has reasonably believed to be fair as unfair so that in practice the adoption of the Wednesbury test will make little difference".
The Commission contended that Interbrew had a full and fair opportunity to make any submissions it wished as to the remedy of divestment of Whitbread with Stella Artois. In particular, it had a full opportunity to seek to demonstrate that Whitbread with Stella Artois was truly viable and independent and would be a remedy which would be equally effective as a divestment of Bass. Interbrew was under an obligation to come forward with its full case. But it chose to side-step the issue by relying upon the damaging consequences of what it described as "an extreme penalty" (see the passage cited above and its responses at page 99). It took that stance notwithstanding the opportunity given to it by the Commission. On 13th November the Commission wrote to Interbrew's solicitors saying:-
"Further to my letter of 10 November on the topics for discussion on the hearing on 15 November, I have been asked to say that the Group carefully considered the written submission from you and would like to concentrate on structural remedies at the hearing.
It is still appreciated that Interbrew may wish to raise the other remedies and, as discussed with Ms Roche this afternoon, it is open to Interbrew to ask to make further points on the morning of 20 November".
Professor Geroski of the Competition, Chairman of the Group, calls attention to what he said at the meeting on 15 November:-
"We are actually going to focus only on three of the proposed remedies here, not because we necessarily think they are them, but just because the written submission on the others has clarified any doubts we have.
The three we are going to focus on are the divestment of the Bass business in its entirety; divestment of the Interbrew/Bass interest in Tradeteam; and early termination of the supply agreements. Really it is just a number of questions, mostly of a practical nature because, as I say, this is your business, not ours, and if we do venture into your business we do want to make sure that we do not cause undue side effects."
On 20 November hearing he said:-
"This hearing is in a sense yours, so in a second I am going to ask for your agenda. I would like to ask you how you plan to play it."
Mr. Smith for Interbrew replied:-
"I think we would like to spend a greater part of the morning on the topic of remedies. ... We would like to address you in a little more detail on the consequences and appropriateness of individual remedies."
The Commission, in essence, say that the agenda was for Interbrew to set. It was under an obligation to lay all its cards on the table should the Commission consider that a duopoly would be created which would give rise to damaging effects to the public interest. Interbrew had ample opportunity to address the issue of viability and independence. Interbrew could hardly have been unaware that the question was whether the remedy would create a viable and independent competitor so as to eliminate the effects of duopoly. Indeed Interbrew itself had accepted that the divestment of Whitbread assets without Stella Artois or Heineken would be ineffective because it would not constitute "a viable stand alone business" (see page 100 of its response).
In support of these submissions the Commission relied upon two authorities. In Hoffman-La Roche (q.v. supra) the Monopolies Commission reported on the level of profits made by the appellants; its particular concerns were the recovery out of the proceeds of sale of drugs of research costs and the level of the profit margin. The Appellants had declined to suggest any alternative standard to allow for current research costs or for an alternative profit margin. Lord Diplock said:-
"Upon the facts presented to Your Lordships house all that their case amounts to is that after an investigation into the facts about which no complaint can plausibly have been made the Appellants were informed by the Chairman of the Commission at an oral hearing that the Commission were considering recommending the level of prices which did not allow the Group to continue to recover out of the proceeds of sale of the reference drugs in the United Kingdom the same proportion of its current research costs directed to the discovery of new drugs or the same level of profit margin as it had done in previous years. The Chairman invited the Appellants to suggest some alternative standard by which an appropriate allowance for current research costs and for profit might be arrived at. The Appellants for what no doubt appeared to them to be good tactical reasons declined to do so. Their real complaint is that having adopted and persisted in this attitude, they were not subsequently informed by the Commission of its intention to recommend that no further allowance should be made in the future prices of the reference drugs for current research cost and that a much lower level of profit on the sale of the reference drugs in the United Kingdom should be allowed for.
My Lords, upon the only evidence that is before Your Lordships the Appellants were given every opportunity to put their case before the Commission both orally and in writing. Their case was that it was in the public interest that they should go on fixing prices on the same basis as they had done before, and that any other basis would be unfair to them and that they were not going to help the Commission to find one. The Commission for reasons that are set out in its report rejected the Appellants' arguments. Even in judicial proceedings in a court of law, once a fair hearing has been given to the rival cases presented by the parties the rules of natural justice do not require the decision maker to disclose what he is minded to decide so that the parties may have a further opportunity of criticising his mental processes before he reaches a final decision. If this were a rule of natural justice only the most talkative of judges would satisfy it and trial by jury would have to be abolished". (see page 369).
The Commission argues that the position of Interbrew was similar to that of Hoffman-La Roche. Interbrew argued that the merger was in the public interest. It rejected each of the remedies proposed. Now that the decision has gone against them it has only itself to blame for the fact that the Commission rejected a remedy which Interbrew had itself described as one that would seriously damage its strategy of regaining control over the Stella Artois brand.
The Commission also drew attention to the decision of Macpherson J. in R -v- MMC ex parte Matthew Brown (q.v. supra). In that case the applicant complained that further evidence and argument had been submitted which was not put to them. Macpherson J. in rejecting that submission, made it clear that the applicant had had a full opportunity to be heard on the issue to which that further evidence went. (see page 1242). He said:-
"Provided each party has its mind brought to bear on the relevant issues it is not in my judgment for the court to lay down rules as to how each group should act in any particular enquiry. Of course neither side must be faced with a bolt from the blue and no party may be kept in the dark and prevented from putting its case."
In both those cases the applicant's complaints were directed at matters which were plainly in issue. In Hoffman-La Roche the applicant chose not to deal at all with the issue as to an appropriate method of recovering research costs or as to an appropriate margin of profits. In Matthew Brown the issue was fairly laid before the applicant and it had had a proper opportunity to deal with it.
In the instant case Interbrew complains that it was given no fair opportunity to deal with the issue of the effects upon the viability of Whitbread with Stella Artois of its dual capacity as owner of Bass and licensor of Stella Artois. This issue, it says, was never raised. Yet it was the vital issue in compelling the majority to its conclusion to reject the remedy of divestment of Whitbread with Stella Artois and to recommend the divestment of Bass.
Had the concerns of the Commission as to the viability and independence of Stella Artois been expressed, Mr. Powell, the Chief Executive, says that he could have made a number points in an attempt to remove those concerns. Those points are set out in his first statement between paragraphs 8.12 and 8.26. They can be summarised as follows:-
1. It could have explained that it would be financially advantageous for Bass Brewers to compete hard in the premium larger segment notwithstanding the reduction of sales of Stella Artois (see paragraph 8.12).
2. It could have proposed an alternative solution to royalty payments by agreeing to a one off payment for Stella Artois' rights.
3. It could have pointed out that in the branded beer market it is not uncommon for the licensee of a brand to compete with other brands of a licensor (see paragraphs 8.14 to 8.18).
4. It could have drawn attention to the licence and further rejected the apparent assertion of unlawful collusive agreements (see 8.19) and drawn attention to the terms of the licence itself.
Accordingly, it could have provided additional material derived from its own commercial experience to demonstrate that the concerns of the Commission as to the lack of viability and independence of Whitbread with Stella Artois were unfounded.
I accept that Interbrew was under an obligation to put forward its full case. If it chose not to do so it has only itself to blame. I reject the submission of Mr. Sumption QC that it was placed in a difficult position because the Commission had not yet reached a view as to whether a duopoly would be created which would have adverse effects in the public interest. It must have been plain to Interbrew that it was required to deal with remedies, should the Commission reach the conclusion that there were adverse effects consequent upon the duopoly. Indeed, it did deal with proposed remedies and rejected the remedy of divestment of Whitbread with Stella Artois in trenchant terms. Moreover it was aware of the need to identify a viable and independent competitor because it was the lack of viability that lead it to reject the divestment of Whitbread without the Stella Artois licence.
However, the submissions of the Commission supported by the Secretary of State rely, as it seems to me, upon two propositions:-
(1) That Interbrew ought to have appreciated that the effectiveness of a remedy would depend upon the viability and independence of the proposed competitor; and
(2) That Interbrew ought to have appreciated that the Commission might take the view that the dual capacity of Interbrew as owner of Bass and licensor of Stella Artois would inhibit that viability and independence.
As to the first proposition I accept that Interbrew ought to have appreciated that any remedy would depend for its effectiveness upon the viability and independence of the proposed competitor. As I have said, it is clear from Interbrew's own comments upon Whitbread without Stella Artois, that it did appreciate that no remedy would be effective unless the competitor was viable and independent. But I do not accept that it ought to have appreciated that the foundation for any view that the divestment of Whitbread with Stella Artois would not provide an effective remedy would be Interbrew's dual capacity. The effect of that dual capacity upon the viability and independence of Whitbread with Stella Artois was never raised at all. It is true that the consequence of Interbrew's chosen stance to reject that remedy was that the issue of its effectiveness as a remedy was never raised. But I do not infer from the stance taken by Interbrew that it chose not to deal with the issue of dual capacity. I do not believe it ever occurred to Interbrew that this would be a matter of concern to the Commission (see in particular paragraphs 5.7 and 5.8 of Mr. Powell's first statement). The Commission's argument seems to be that Interbrew ought reasonably to have been expected not only to deal with the question of the viability and independence of Whitbread with Stella Artois but also to have volunteered reasons why any unexpressed concerns that the Commission may have had as to that viability were unfounded. That seems to me to be going a step too far. Had the Commission had concerns flowing from that dual capacity at the time of either of the two hearings on 15 November or 20 November I am confident that they would have been put to Interbrew. I suspect that the issue between the members of the Group arose only later. But I can see no reason why the simple and, as it seems to me, clear point should not have been put to Interbrew:-
"do you accept that your capacity as owner of Bass and licensor of Stella Artois will inhibit the competitiveness of Whitbread with Stella Artois?"
It was, after all, a matter on which Interbrew, with its experience, might have been expected to have a view. I accept that the Commission was under no obligation to undertake a two-stage procedure revealing firstly its provisional views as to the consequences of a duopoly and, at the second stage, inviting comments upon a proposed remedy. I reject Mr. Sumption QC's submission that Interbrew was unfairly hampered by having to deal with both issues at the same time. It was, without doubt, properly advised with the aid of skilled legal advisors. Submissions made in the alternative were not beyond its capacity. I also accept that the Commission was under time restraints imposed by Article 9(6). It had to report in sufficient time to give the opportunity for the Secretary of State to act within a period of four months (see Article 9(6)). But that, in my judgment, would not have prevented the issue being raised in a way which would have given Interbrew a fair opportunity to deal with it.
The Secretary of State, in supporting the Commission's submissions, referred to the fact that the decision already taken by the Secretary of State is far from being the final word. There will be further opportunities for comments when the DGFT seeks to secure appropriate undertakings or by way of representations before the laying of any draft order or during the Parliamentary affirmative resolution procedure. But none of those stages can cure the defect in failing to give a fair opportunity to Interbrew at a stage before the Commission had made up its mind on the issue which compelled its recommendation. It is plain from its reasoning, that absent its concerns as to the effect of Interbrew's dual capacity, it would have recommended divestment of Whitbread with Stella Artois.
Nor do I think this case is analogous to Hoffman-La Roche. In that case Hoffman-La Roche chose not to deal with any alternative remedy. In the instant case the stance taken by Interbrew does not reveal that it had made a tactical decision not to deal with Commission's concerns as to the lack of viability and independence of Whitbread with Stella Artois. The basis for that concern had never been raised.
In those circumstances, despite the skill and expertise of the Commission and the care with which its report was prepared, I am driven to the conclusion that there was such unfairness that its decision cannot stand. It must follow that the Secretary of State's decision must also be set aside. I am far from saying that the Commission would not be entitled to reach the same view or that the Secretary of State would not be entitled to follow any recommendation made by the Commission based on the conclusion that Whitbread with Stella Artois would not be a viable and independent third force in the market. But, as I have said, fairness demands that Interbrew be given a proper opportunity to deal with the effect on Whitbread with Stella Artois of Interbrew's capacity as owner of Bass and licensor of Stella Artois. For that reason this application is allowed. Neither the Commission nor the Secretary of State has sought to argue that even if there was a want of fair procedure I should exercise my discretion to dismiss the application on the grounds that any representation by Interbrew would make no difference.
SALE TO A SINGLE BUYER APPROVED BY THE DIRECTOR GENERAL
The final issue relates to the Commission's recommendation that Bass Brewers should be sold to "a buyer approved by the DGFT" (see report 2.219). Interbrew challenge this recommendation on the basis that there is no justification within the report. It points out that there would be no power to prevent a buyer from breaking up the business of Bass and selling the units separately thus realising the potential profit not available to Interbrew. In such circumstances it is wrong to impose an additional burden Interbrew limiting its selling options.
In relation to the requirement of approval by the Director General it contends that this requirement cuts across the scheme for scrutiny by the EC Commission or possibly the United Kingdom Competition authorities. The likely buyer would be an existing brewer and a fresh merger would occur should that buyer purchase Whitbread with Stella Artois. Further, no criteria had been laid down which the Director General should apply.
I refer again to the policy of the Commission set out within its notice as to remedies 2001/C68/03OJC68 Volume 44 2 March 2001. At paragraph 20 the Commission states:-
"There are cases where the viability of the divestiture package depends, in view of the assets being part of the business, to a large extent on the identity of the purchaser. In such circumstances, the Commission will not clear the merger unless the parties undertake not to complete the notified operation before having entered into a binding agreement with a purchaser for the divested business ... approved by the Commission."
The UK Competition Commission was entitled to take the same stance. The recommendation was designed to restore conditions of effective competition (analogous to the powers of the EC Commission under Article 8(4) of the Merger Regulation). There can, of course, be no guarantee that the purchaser would not break up the business of Bass Brewer. But the recommendation of the Commission coupled with the scrutiny of the Director General would at least increase the chances of competition by a third force in the market being effective. The Director General would be in a position to see whether the proposed purchaser intended to undertake the business of Bass as a single independent viable entity and be in a position to assess any assertions that that was the purchaser's intention. The recommendation seems to me entirely consistent with the quest for an independent and viable competitor in the market so as to eliminate the consequences of the duopoly. In my judgment the Commission was entitled to make this recommendation.
Accordingly, whilst I reject the challenges to the substance of the Commission's recommendation, I conclude that the procedure by which its conclusion was reached was unfair and I allow this application. I shall hear further argument as to the appropriate relief.
MR GREEN: My Lord, the parties, having had an opportunity to discuss matters, have effectively reached agreement as to the proper directions. If I could first of all tell your Lordships what the agreed order is and then hand up a copy, with which one or two manuscript amendments will need to be made. It is agreed that:
1. The recommendation on remedies of the First Defendant that the Claimants be required to divest of Bass Brewers in the United Kingdom to a buyer approved by the Director General of Fair Trading, contained in paragraphs 2.209 to 2.219 of its report submitted to the Second Defendant on 5 December be quashed, together with consequential paragraphs in Chapter 1 of the Report, in particular paragraphs 1.14 to 1.18;
2. It is also agreed that the decision of the second Defendant Announced on 3 January 2001 to accept the First Defendant's recommendations or remedies be quashed;
3. It is agreed that the question of remedies be remitted for reconsideration by the Second Defendant, with such assistance as he may consider appropriate from the Director General of Fair Trading;
4. It is agreed that the First and Second Defendant pay 75% of the Claimants' costs of the judicial review, such costs to be subject to a detailed assessment if not agreed.
MR JUSTICE MOSES: What does that actually mean? That your people will then talk direct to the Department?
MR GREEN: My Lord, and the Minister will, if he considers it appropriate, seek the assistance of the Director General of Fair Trading.
MR JUSTICE MOSES: So who do you go and sort of argue with?
MR GREEN: The DTI and the Secretary of State.
MR JUSTICE MOSES: Yes.
MR GREEN: If your Lordship would like to see an order I can hand one in or you can see it finalised.
MR JUSTICE MOSES: If you finalise it - it sounds right to me, subject to what they say - then you can hand it in to my associate.
MR PARKER: I agree.
MR ANDERSON: Yes, my Lord.
MR JUSTICE MOSES: Thank you both. That sounds all very sensible. So the last two days are obviously very useful.
MR GREEN: Indeed, they were.
MR JUSTICE MOSES: I am very grateful to everybody for working hard on that.
So far as my judgment is concerned, I have had further editorial corrections. I am sorry my proofreading is so bad. I think that after a time one cannot bear to look at it again.
MR GREEN: It is always easier if you can get someone else to do it. I think you have had a list from Miss Carss-Frisk.
MR JUSTICE MOSES: Yes. I had an earlier list from somebody. I have had two lists now, I think.
MR BEARD: It was from the first defendant.
MR JUSTICE MOSES: Only that second sentence on the... I think now this it does not matter anyway. I do not think I was making great law anyway. Right, thank you all very much indeed.
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