[2017] UKPC 28
Privy Council Appeal
No 0059 of 2016
JUDGMENT
Fair Trading Commission (Appellant) v Digicel
Jamaica Limited and another (Respondents) (Jamaica)
From the Court of Appeal
of Jamaica
before
Lord Mance
Lord Clarke
Lord Sumption
Lord Hodge
Lord Carloway (Scotland)
JUDGMENT GIVEN ON
24 August 2017
Heard on 3 and 4 May 2017
|
Appellant
Dr Delroy S
Beckford
Wendy M Duncan
Marc S Jones
Kabir Bhalla
(Instructed by Axiom
Stone)
|
|
Respondents
B St Michael Hylton
QC
Kevin O Powell
(Instructed by
Jones Day)
|
LORD SUMPTION:
Background
1.
The Fair Trading Commission (“the Commission”) is the Jamaican statutory
competition authority, established under the Fair Competition Act 1993. The
question at issue on this appeal is whether it has power to intervene in a
merger in the market for voice communications and text messaging services in
Jamaica, which for convenience I shall call the “telecommunications market”.
2.
Before 2000, Cable & Wireless Jamaica Ltd, a subsidiary of the Cable
& Wireless group, was the sole provider of telecommunications services in
Jamaica. The Telecommunications Act of that year provided for the
liberalisation of the market, and the issue to qualified persons of licences to
supply such services. As a result, by March 2011 there were three licensed
suppliers of telecommunications services: Digicel Jamaica Ltd, trading as
“Digicel”; Oceanic Digital Jamaica Ltd, trading as “Claro”, an indirect
subsidiary of the Mexican América Móvil group; and Cable & Wireless Jamaica
Ltd, trading as “LIME”. The transaction at issue on this appeal occurred on 11
March 2011, when Digicel entered into an agreement with América Móvil by which
it acquired the entire issued share capital of Claro’s immediate parent.
3.
Under section 17 of the Telecommunications Act, a transfer of a
telecommunications licence or associated business required the consent of the
Minister. The Prime Minister (who was the relevant Minister for this purpose)
gave his consent on the same day.
4.
LIME immediately protested to the Commission that the merger would
lessen competition in the market and contravene the Fair Competition Act.
Shortly afterwards, the Commission opened an investigation. On 8 December 2011,
it reported. It found that Digicel was the market leader and that Claro was its
only economically significant competitor. In those circumstances, the merger
would substantially lessen competition in the telecommunications market, with
the result that prices would be likely to rise, that consumer choice would be
diminished, and technological advance would be impeded. The Commission acknowledged
that the transaction would be likely to bring some economic benefits, but it
considered that these would not sufficiently offset the anti-competitive effects.
A number of recommendations were made for mitigating those effects.
The proceedings
5.
Immediately after publishing its report, the Commission began the present
proceedings against Digicel and Claro in the Supreme Court of Jamaica. The
principal relief claimed was (i) a declaration that Digicel and Claro had
contravened Part III of the Fair Competition Act, and in particular section 17;
(ii) an injunction restraining them from giving effect to the principal
provisions of the merger agreement; and (iii) the imposition of a financial
penalty.
6.
Digicel and Claro responded by challenging the Commission’s regulatory
jurisdiction. Shortly before the trial, Sinclair-Haynes J directed the trial of
two preliminary issues:
“(a) Whether the Fair
Competition Act applies to the agreement or the transactions effected by the
agreement which is the subject of these proceedings.
(b) Whether the claimant has
jurisdiction in relation to the agreement or the transactions effected by the
agreement which is the subject of these proceedings.”
7.
Behind the issues thus formulated, there are really three questions:
(1)
Does the Commission have jurisdiction to intervene in the market for
telecommunications services?
The argument is that there is
a distinct statutory scheme for the telecommunications market, which implicitly
excludes the operation of the Fair Competition Act 1993 and the jurisdiction of
the Commission. Sinclair-Haynes J held that the two statutory schemes operated
in parallel, except where some part of the Fair Competition Act was
specifically excluded by other enactments. On this point, the Court of Appeal
agreed.
(2)
Does section 17 of the Fair Competition Act apply to mergers at all?
The argument is that it
applies only to anti-competitive conduct concerted between two or more
independent actors, and not to structural alterations in the market arising
from the elimination of a participating firm. Sinclair-Haynes J rejected this
argument, but the Court of Appeal accepted it.
(3)
Does section 17 of the Fair Competition Act apply to transactions
approved by the Minister under section 17 of the Telecommunications Act?
The Court of Appeal held,
overruling Sinclair-Haynes J, that it did not.
The Fair Competition Act
8.
The functions and powers of the Commission are defined by Part II of the
Fair Competition Act. Section 5(1) provides that the Commission is:
“(a) to carry out, on its own
initiative or at the request of any person such investigations or inquires in
relation to the conduct of business in Jamaica as will enable it to determine
whether any enterprise is engaging in business practices in contravention of
this Act and the extent of such practices.”
9.
The “contraventions” which are relevant for present purposes are alleged
breaches of Part III, which is headed “Control of Uncompetitive Practice”. The
relevant provision in this case is section 17, which provides:
“17.(1) This section applies to
agreements which contain provisions that have as their purpose the
substantial lessening of competition, or have or are likely to have the effect
of substantially lessening competition in a market.
(2) Without prejudice to the
generality of subsection (1) agreements referred to in that subsection include
agreements which contain provisions that -
(a) directly or indirectly
fix purchase or selling prices or any other trading conditions;
(b) limit or control
production, markets, technical development or investment;
(c) share markets or
sources of supply;
(d) affect tenders to be
submitted in response to a request for bids;
(e) apply dissimilar
conditions to equivalent transactions with other trading parties, thereby
placing them at a competitive disadvantage;
(f) make the conclusion of
contracts subject to acceptance by the other parties of supplementary
obligations which, by their nature or according to commercial usage, have no
connection with the subject of such contracts,
being provisions which have or are
likely to have the effect referred to in subsection (1).
(3) Subject to subsection
(4), no person shall give effect to any provision of an agreement which has the
purpose or effect referred to in subsection (1); and no such provision is enforceable.
(4) Subsection (3) does not
apply to any agreement or category of agreements the entry into which has been
authorized under Part V or which the Commission is satisfied -
(a) contributes to -
(i) the improvement of
production or distribution of goods and services; or
(ii) the promotion of
technical or economic progress,
while allowing consumers a fair
share of the resulting benefit;
(b) imposes on the
enterprises concerned only such restrictions as are indispensable to the
attainment of the objectives mentioned in paragraph (a); or
(c) does not afford such
enterprises the possibility of eliminating competition in respect of a
substantial part of the goods or services concerned.”
10.
In addition to the control of anti-competitive agreements under section
17, sections 18-20 of the Act deal with other forms of anti-competitive
conduct. Section 18 prohibits exclusionary agreements between competitors,
whose effect is to prevent, restrict or limit the supply of goods or services
to or by third parties, for example cartel agreements. Sections 19-20 are
concerned with the abuse of a dominant position. Section 19 defines a dominant
position in “a market” as a state of affairs in which an enterprise is able to
operate in that market “without effective constraints from its competitors or
potential competitors”; and section 20 defines an abuse of a dominant position
as conduct which “impedes the maintenance or development of effective
competition in a market”, in particular (but without limitation) in certain
specified respects.
11.
It will be apparent that the dichotomy in Part III of the Fair
Competition Act between anti-competitive agreements (sections 17-18) and
anti-competitive conduct independent of agreement pursued by an economically
dominant firm (sections 19-20) is derived from the system of competition
control operated by the European Union under articles 101 and 102 TFEU.
Question (1): Jurisdiction over the telecommunications
market
12.
The provisions of Part III of the Fair Competition Act are in wholly
general terms. The Commission is empowered to investigate whether “any
enterprise” is engaging in business practices contravening the Act. The
contraventions in question include giving effect to any agreement with an
anti-competitive purpose or effect in “a market”. And sections 19 and 20 apply
to firms operating or distorting competition in any market. There is no
provision of the Fair Competition Act excluding any particular sectoral market
from the Commission’s powers of intervention, and it has not been suggested
that any such provision can be implied from the Act itself. During the period
before 2000, when Cable & Wireless was the monopoly provider of
telecommunications services, it is difficult to envisage that section 17 could
have any practical application to the telecommunications market because there
was no competition in that market to be “lessened”. The same is true of section
18, because there were not two or more competitors between whom an exclusionary
agreement could be made. But the Commission would, for example, have had power
to intervene to address an abuse by Cable & Wireless of the dominant
position which it then held in the telecommunications market.
13.
Digicel contends that this changed in 2000, because the
Telecommunications Act implicitly excluded the Commission’s powers of
intervention in the telecommunications market by providing a distinct
regulatory regime for that market, whose operation was the responsibility of
other bodies.
14.
It would be unusual for a later statute to revoke or effect significant
modifications to the powers of an existing statutory body established under an
earlier Act, without any express reference to it. But it is in principle
possible if it is sufficiently clear that that was the legislature’s intention.
As a general rule, where two statutory provisions or schemes are inconsistent,
the particular will prevail over the general. The Telecommunications Act may
fairly be said to deal particularly with the telecommunications market, whereas
the Fair Competition Act applies generally to economic actors. Before the
particular can be said to displace the general, it is necessary to show some
inconsistency between them. In this case, Digicel would have to demonstrate
that after 2000 the continued application of the Fair Competition Act to the
telecommunications market according to its terms would interfere in some
significant respect with the statutory scheme specifically created to regulate
the telecommunications market. It is therefore necessary to examine the terms
of the Telecommunications Act.
15.
The Telecommunications Act had two main objects which bear on the
present issue. One was to establish a new licensing scheme for suppliers of
telecommunications services, under the authority of the Minister. The other was
to introduce a new scheme of regulation for licensed operators in the sector,
administered by the Office of Utilities Regulation (“the Office”). The Office
was a statutory body created by the Office of Utilities Regulation Act 1995.
The function of the Office was to regulate “prescribed utility services”, an
expression which included telecommunications services, but also other utility
services, such as passenger transport, water and electricity.
16.
Section 4 of the Telecommunications Act provided:
“4.(1) The Office shall regulate
telecommunications in accordance with this Act and for that purpose the Office
shall -
(a) regulate specified
services and facilities;
(b) receive and process
applications for a licence under this Act and make such recommendations to the
Minister in relation to the application as the Office considers necessary or
desirable;
(c) promote the interests
of customers, while having due regard to the interests of carriers and service
providers;
(d) carry out, on its own
initiative or at the request of any person, investigations in relation to a
person’s conduct as will enable it to determine whether and to what extent that
person is acting in contravention of this Act;
(e) make available to the public, information
concerning matters relating to the telecommunications industry;
(f) promote competition
among carriers and service providers;
(g) advise the Minister on
such matters relating to the provision of telecommunications services as it
thinks fit or as may be requested by the Minister;
(h) determine whether a
specified service is a voice service for the purposes of this Act;
(i) carry out such other
functions as may be prescribed by or pursuant to this Act.”
Certain of these provisions are replicated in the Office
of Utilities Regulation Act, but the terms of that Act add nothing to the
statutory scheme which is relevant to the present issue.
17.
For the purpose of performing these functions, the Telecommunications
Act conferred wide powers on the Office, including a power to regulate
interconnection terms (Part V), to make rules prescribing the quality of
service to consumers (section 44(3)), and to impose price caps on consumer
charges (section 46).
18.
Utilities are generally natural geographical monopolies, because they
are dependent on expensive infrastructure entailing high barriers to entry and
important first-mover advantages. Any scheme of utilities regulation is
therefore likely to require attention to competition issues. This is
particularly true in the telecommunications market, where interconnection
agreements govern access to networks. It is therefore not particularly
surprising to find that both the Telecommunications Act and the Fair
Competition Act are concerned with competition issues. The functions of the
Office under the Telecommunications Act include the protection of consumer
interests in the broadest sense, including in particular the promotion of
competition among suppliers.
19.
More particularly, competition considerations feature in the scheme of
the Telecommunications Act in the following ways:
(1)
Section 5 provides:
“5. Where after consultation
with the Fair Trading Commission the Office determines that a matter or any
aspect thereof relating to the provision of specified services -
(a) is of substantial
competitive significance to the provision of specified services; and
(b) falls within the
functions of the Fair Trading Commission under the Fair Competition Act,
the Office shall refer the matter
to the Fair Trading Commission.”
Part V provided for interconnection between networks so as
to achieve end-to-end connectivity, on terms prescribed or agreed or failing
that determined by the Office. Special provision is made for economically
dominant carriers, in accordance with a scheme loosely modelled on EU
legislation: see in particular the Common Regulatory Framework Directive for
Electronic Communications Networks 2002/21/EC. A public voice carrier
designated by the Office as holding a dominant position in the Jamaica market
within the meaning of section 19 of the Fair Competition Act, is required under
the Telecommunications Act to submit to a number of additional obligations.
These include (i) obligations of non-discrimination, transparency, and
diversity in its services (section 30); (ii) a regime of price control for
interconnection, based on costs (section 33); (iii) “competitive safeguard
rules” and associated guidelines (section 35); and (iv) rules requiring the
provision of specified forms of indirect access to its network (section 36).
(2)
Section 73 of the Telecommunications Act provided:
“73.(1) The provisions of the
Fair Competition Act shall not affect an agreement between the Minister and a
universal service provider in relation to the universal service obligation or
any agreement approved by the Office after consultation with the Fair Trading
Commission.
(2) Except as provided in
subsection (1) nothing in this Act shall be construed as affecting the right of
any person to refer a matter to the Fair Trading Commission in accordance with
the Fair Competition Act.”
20.
Although both the Office and the Commission have responsibilities in
relation to competition, in the Board’s opinion, their functions in relation to
it are not inconsistent but complementary. The Telecommunications Act imposes a
duty on the Office to promote competition in the telecommunications market. It
also imposes specific obligations on licensed firms and empowers the Office to
make statutory rules which will impose further obligations on them. These are
mainly concerned with regulating interconnection terms and with restricting the
ability of dominant firms to exploit their market strength. Plainly, compliance
with these obligations will reduce the opportunities for anti-competitive
conduct by firms operating in the market, especially by dominant firms. But it
will not eliminate it. Non-dominant firms are subject to much lighter
regulation. Some significant tools of competition regulation, such as merger
control, are not available to the Office. The Telecommunications Act imposes no
general duties on firms to refrain from anti-competitive conduct, analogous to
the general prohibitions of anti-competitive agreements and conduct in sections
17-20 of the Fair Competition Act. So, while the Office has a statutory power
to investigate contraventions of the Telecommunications Act, and if necessary
to take enforcement proceedings in respect of them, those contraventions do not
include anti-competitive agreements or conduct, save insofar as they
incidentally constitute breaches of specific rules in or under the
Telecommunications Act. Anti-competitive conduct which is not a breach of those
rules is governed only by the Fair Competition Act. It represents a significant
public policy, and can be controlled only by the Commission by the exercise of
powers derived from the Fair Competition Act. Nothing in the Telecommunications
Act suggests, and there is no other reason to suppose, that it was intended to
relieve firms of the obligation to comply with Part III of the Fair Competition
Act, or to deprive the Commission of the power to enforce it against
telecommunications firms.
21.
This analysis is confirmed by sections 5 and 73 of the Telecommunications
Act, both of which assume the continuing application of the Fair Competition
Act to the telecommunications market.
22.
Section 5 requires the Office to consult the Commission on the question
whether “a matter or any aspect thereof” is of substantial competitive
significance to the provision of telecommunications services and “falls within
the functions of the Fair Trading Commission under the Fair Competition Act.”
If it does, the Office must refer the matter to the Commission. This
necessarily means that the two regimes operate in parallel. Digicel accepted
that this was so, up to a point. But it submitted that the Commission had no
jurisdiction over the telecommunications market in the absence of a reference
under section 5. The Board does not agree. Part III of the Fair Competition Act
is a general legal prohibition. A transaction which contravenes section 17 does
so regardless of whether or not the matter is referred to the Commission by the
Office. It would therefore be surprising if the principal competition authority
of Jamaica were unable to take action. Nor is it. Section 5 of the
Telecommunications Act is merely a procedural mechanism by which an examination
of the implications of some matter for competition may be initiated. It is not
the only one. The Commission remains entitled under section 5(1)(a) and (d) of
the Fair Competition Act to deal with any matter “on its own initiative or at
the request of any person” adversely affected. Under section 73(2) of the
Telecommunications Act nothing in the Act was to affect the right of any person
to refer a matter to the Commission.
23.
Turning to section 73(1), that provision excludes from the scope of the
Fair Competition Act agreements with the Minister relating to the provision of
universal services, and agreements approved by the Office in accordance with
that Act. This makes little sense unless the Fair Competition Act continues to
apply in other respects.
24.
The Board concludes that the Commission has jurisdiction to intervene in
the telecommunications market in the same way as in any other.
Question (2): merger control
25.
Digicel’s next challenge to the Commission’s right of intervention is
that section 17 of the Fair Competition Act is concerned with agreements whose
performance involves concertation between two or more distinct firms. Section 2(2)(b)
of the Fair Competition Act provides that for the purposes of the Act “a group
of interconnected companies shall be treated as a single enterprise.” So, it is
said, once the merger had been completed, the law would regard Digicel and
Claro as a single enterprise, and a single enterprise cannot engage in a course
of concerted conduct with itself.
26.
The difficulty about this argument is that section 17 is not limited to
agreements providing for concerted conduct between the parties after it has
been made. It applies to any agreement falling within the definition in
subsection (1). That means any agreement containing provisions having as their
purpose or likely effect the substantial lessening of competition in the
relevant market. Subsection (2) gives examples of such provisions, all of which
are indeed concerned with concertation between distinct firms pursuant to the
provision in question. But subsection (2) is not exhaustive. It is expressed to
be without prejudice to the generality of subsection (1). An agreement by which
two competitors merge is an agreement falling within subsection (1), because
the reduction in the number of significant competitors in a market is
self-evidently likely to have the effect of lessening competition. It follows
that even if this result was not intended, it is subject to the prohibition in
subsection (3), unless authorised by the Commission under subsection (4).
27.
Until the adoption of a comprehensive scheme of merger control under
Council Regulation 4064/89 EEC, a similar issue arose under the competition
regime of the European Union. The Treaty provided for the control of
anti-competitive agreements by what was then article 85 (now article 101) and
abuses of a dominant position by article 86 (now article 102). Article 101 prohibits
“all agreements between undertakings, decisions by associations
of undertakings and concerted practices which … have as their object or effect
the prevention, restriction or distortion of competition within the internal
market”. Article 102 prohibits “Any abuse by one or more undertakings of a
dominant position within the internal market or in a substantial part of it.”
These provisions have substantially the same purpose as sections 17 and
20 of the Fair Competition Act, although the language of the Jamaican
provisions is not identical and section 17, with its references to
“substantial” lessening and “likely” effect, is arguably broader. The essential
point, however, for present purposes, is that like the Jamaican provisions,
articles 101 and 102 of the EU Treaty contained no explicit reference to
mergers, but nonetheless provided the legal basis on which the European
Commission controlled mergers before 1989. It is fair to say that this approach
was controversial. But in Europemballage Corporation and Continental Can Co
Inc v Commission of the European Communities (Case C-6/72) [1973] ECR 215
the European Court of Justice held that acquisitions by a dominant company were
subject to control under article 102; and in British American Tobacco and R
J Reynolds Industries Inc v Commission of the European Communities (Joined
Cases C-142/84 and C-156/84) [1987] ECR 4487, the Court held that agreements
for acquisitions by non-dominant companies were subject to control under
article 101. The British American Tobacco case involved what amounted to
a joint venture agreement, including the acquisition of a 50% shareholding in a
competitor which conferred influence but not control. It was therefore a case
in which the parties to the agreement did retain their distinct identity after
it was carried into effect. Digicel understandably relies on that fact. But it
was not the basis on which the Court ruled that the transaction fell within
article 101. The Court held (para 38) that article 101 applied “where, by the
acquisition of a shareholding or though subsidiary clauses in the agreement,
the investing company obtains legal or de facto control of the
commercial conduct of the other company or where the agreement provides for
commercial cooperation between the companies or creates a structure likely to
be used for such cooperation.” Although the case itself involved influence
rather than control, article 101 was held to apply to both.
Question (3): Agreements approved by the Minister
28.
The relevant statutory provisions are sections 11 and 17 of the
Telecommunications Act.
29.
Section 11 defines the qualifications required for the grant of a
telecommunications licence. It provides:
“11.(1) An application for a
licence under this Act shall be made to the Office in the prescribed form and
shall be accompanied by the prescribed application fee and contain a statement
that -
(a) the applicant
undertakes to comply with the provisions of this Act relating to the type of
facility or specified service to which the application relates, including -
(i) interconnection
obligations;
(ii) universal service obligations;
(iii) licence limitations;
and
(iv) network expansion
requirements;
(b) the applicant is not
disqualified from being granted a licence by reason of any legal impediment;
(c) the applicant possesses
the technical qualifications to fully perform the obligations imposed by the
licence; and
(d) the applicant satisfies
the financial requirements for the construction and operation of the facility
or the provision of the services to which the application relates.”
30.
Section 17 deals with transfers of a licence or the business for whose
operation a licence has been granted. Sections 17(2) and (3) provide:
“(2) A licensee may, with the
prior approval of the Minister, assign its licence or any rights thereunder or
transfer control of its operations.
(3) An application for
approval of an assignment or transfer under this section shall be made in
writing to the Minister who shall grant such approval if he is satisfied that
the assignee satisfies the requirements of section 11(1)(a) to (b) as
regards the obligations imposed on a licensee by this Act or the licence.”
31.
Digicel relies on the Prime Minister’s approval of the merger agreement
under section 17(3) as shielding it from intervention by the Commission. This
point found favour with the Court of Appeal on the ground that section 17 of
the Telecommunications Act is the only provision of either Act which deals in
terms with mergers. It was therefore, they thought, by implication the full
extent of statutory control over mergers.
32.
In the Board’s opinion, this is misconceived. As the Board has pointed
out above, section 17 of the Fair Competition Act, although it does not refer
in terms to mergers, establishes a regime of control over a class of
transactions which includes mergers. It follows that mergers fall for different
purposes within both the Fair Competition Act and the Telecommunications Act.
The lawfulness of an agreement may depend on its compliance with any number of
different statutory requirements, all of which must be satisfied if they are
relevant.
33.
The merger agreement in this case effected a transfer to Digicel of
control over the operations of Claro. The Minister’s approval of such a
transfer was required in order to ensure that the transferee satisfied the
principal qualifications required of a licensee for the original award of the
licence under section 11, namely those specified at section 11(1)(a) and (b).
Although the Prime Minister, when announcing his decision to approve, said that
he had taken competition considerations into account, those considerations had
nothing to do with the statutory function which he was performing. The criteria
for approval are concerned only with the transferee’s ability and willingness
to comply with the licence terms. They are not concerned with the transferee’s
compliance with the licensee’s distinct obligation to refrain from
anti-competitive conduct prohibited by Part III of the Fair Competition Act.
For this reason, the Prime Minister’s approval has no effect on the statutory
functions of the Commission as the relevant competition authority.
Conclusion
34.
The Board will humbly advise Her Majesty that this appeal should be
allowed, the order of the Court of Appeal set aside and the order of
Sinclair-Haynes J restored. The parties are invited to make written submissions
on costs within 21 days of the delivery of this judgment.
