IBA Health Ltd v Office of Fair Trading

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Mance,the Vice-Chancellor,Lord Justice Carnwath,The Vice-Chancellor
Judgment Date19 Feb 2004
Neutral Citation[2004] EWCA Civ 142
Docket NumberCase No: C1/2003/2771, C1/2004/0036, C1/2003/2755

[2004] EWCA Civ 142

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM COMPETITION APPEAL TRIBUNAL

Royal Courts of Justice

Strand,

London, WC2A 2LL

Before:

The Vice-Chancellor

Lord Justice Mance and

Lord Justice Carnwath

Case No: C1/2003/2771, C1/2004/0036, C1/2003/2755

Between:
Office of Fair Trading and Others
Appellants
and
Iba Health Limited
Respondent

Mr. Peter Roth QC and Mr. Daniel Beard (instructed by the Director of Legal Services, Office of Fair Trading) for the Office of Fair Trading, the 1 st Appellant

Mr. David Anderson QC and Ms Kelyn Bacon (instructed by Messrs Ashurst) for the iSoft Group PLC and Torex PLC the 2 nd and 3rd Appellants

Mr. Nicholas Green QC and Mr. Aidan Robertson (instructed by Messrs Macfarlanes) for the IBA Health Ltd, the Respondent.

Vice-Chancellor

Introduction

1

On 23rd July 2003 iSoft Group plc ("iSoft") offered to acquire the issued share capital in Torex plc ("Torex") in exchange for iSoft shares. Both iSoft and Torex were and are engaged in the supply of software and systems to the healthcare applications market on such a scale that the offer, if accepted, would lead to a relevant merger situation as defined in s.23 Enterprise Act 2002 (" EA") which had come into force on 20th June 2003. The offer was notified to the Office of Fair Trading ("OFT") by iSoft on 1st August 2003. On 15th August 2003 IBA Healthcare Ltd ("IBA"), a company incorporated in the State of Victoria, Australia and also engaged in the same market complained to OFT about the effect of the anticipated merger.

2

S.33(1) EA provides that

"The OFT shall, subject to subsections (2) and (3), make a reference to the Commission if the OFT believes that it is or may be the case that –

(a) arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a relevant merger situation; and

(b) the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services."

3

OFT initiated an investigation. It is not and never has been disputed that the terms of s.33(1) (a) are satisfied. On 30th September 2003 OFT sent to iSoft and Torex, but not IBA or any other third party, what is called an 'issues letter' ("the Issues Letter") . It set out what were described as hypotheses which did not necessarily represent the views of OFT all of which tended to demonstrate that s.33(1) (b) was satisfied too. On 3rd October 2003 officials of OFT met representatives of iSoft and Torex. On 6th October 2003 OFT received written submissions from solicitors acting for iSoft and Torex. They relied, amongst other considerations, on the effect of the National Programme for IT ("NPfIT") . NPfIT is a new regime, proposed by the Department of Health in June 2002, to update IT systems as used in the National Health Service in England. It will provide for cross-referencing of patients' records by creating a complete electronic medical record for each patient across all NHS providers in England.

4

In its written decision dated 6th November 2003 OFT concluded that whilst the strong base of installed systems might give the parties a large market presence it was unlikely, in itself, to confer significant market power in view of the changes being brought about by the NPfIT. OFT considered that such a fundamental change had altered the future competitive landscape so that competitive constraints must be viewed under a new scenario. It added

"OFT does not believe that it is or may be the case that, if carried into effect, the creation of this relevant merger situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods and services."

Accordingly OFT did not refer the proposed merger to the Competition Commission.

5

IBA was dissatisfied with this conclusion. On 21st November 2003 it applied to the Competition Appeal Tribunal ("CAT") under s.120 EA for a review of the decision of OFT. S.120(4) EA requires CAT in determining such an application to

"apply the same principles as would be applied by a court on an application for judicial review."

6

The application was heard and determined by CAT with commendable speed. In their judgment dated 3rd December 2003 CAT described in detail the basis on which they concluded that they should quash the decision of OFT and refer the matter back to it for reconsideration. That basis was summarised in paragraph 266 in these terms:

"…we are not satisfied that the OFT applied the right test, or that the OFT reached a conclusion that was reasonably open to them. We are not satisfied that the facts are sufficiently found in the decision or that all material considerations have been taken into account. We are unable to verify whether there was material on which the OFT could reasonably base important findings in the decision."

7

OFT, iSoft and Torex (collectively "the Appellants") now appeal to this court, with the permission of CAT, under s.120(6) EA. Such an appeal lies on a point of law only. The points of law are (1) whether CAT correctly interpreted and applied s.33(1) EA and (2) whether CAT properly applied the principles of judicial review as required by s.120(4) EA. Before dealing with either of those issues it is necessary to describe the relevant facts and the statutory background and framework in some detail.

The Facts

8

iSoft provides software systems to hospitals and other healthcare providers in the United Kingdom. Between 1999 and 2002 it acquired a number of businesses in the healthcare sector. In the year to 30th April 2003 it had a worldwide turnover of £91.5m of which £74m represented sales in the UK and other EU states. Torex is concerned in both the primary, i.e. GPs, and the secondary, i.e. hospitals, healthcare sectors. It provides both software and systems and hardware, including installation and support. In the year to 31st December 2002 its worldwide turnover was £161.8m of which £65.6m was in respect of healthcare technology sales in the UK and Republic of Ireland and £41.8m for retail sales of software and systems in UK, Republic of Ireland and other parts of Europe.

9

The principal software systems supplied by iSoft and Torex to the secondary healthcare sector, that is to hospitals, are Electronic Patient Records ("EPRs") and Laboratory Information Management Systems ("LIMS") . OFT recorded that the combined share of iSoft and Torex in respect of such systems as are installed in UK hospitals, described as "legacy", is 44% of EPRs and 66% of LIMS. It described iSoft and Torex as "key suppliers in each country of the UK, particularly in the supply of LIMS (where in Scotland and Wales their legacy systems will account for 100% of the installed base)" and "clearly the two leading suppliers of IT software to the healthcare sector in the UK".

10

Formerly such systems were bought by hospitals or their strategic health authorities on an individual basis as and when required. Consequently the NHS had many different installed IT systems thereby giving rise to problems of compatibility. In the summer 2002 the Department of Health proposed the new regime now known as NPfIT. This will allow for cross-referencing of patients' records by the creation of a complete medical record for each patient across all NHS providers in England. National projects will create a national spine of archived records and introduce an electronic system for appointments. The proposal envisaged the creation in England of five regions with a single local service provider ("LSP") as project manager to oversee the implementation of NPfIT. LSPs and their preferred application providers, known as PAPs, are to be appointed by the Department of Health. They will be responsible for developing and managing the transition from legacy systems to the new systems. OFT described the consequence as a fundamental change to the procurement process, significantly reducing the number whilst increasing the size of contracts available in England.

11

The first phase of NPfIT was announced by the Department of Health in January 2003. It involved funding of £2.3bn spread over three years. In February 2003 the Department invited applications from those who wished to be considered as an LSP. Initially Torex applied but, on 30th June 2003, withdrew its application. In May 2003 the Output Based Specification ("OBS") for the integrated care record service ("ICRS") was issued. It was revised in August 2003. It contained a number of passages in which the importance of legacy systems and their continued use is emphasised. Thus para 980 is headed Legacy Management. Para 980.2 deals with the continuation of legacy systems. Para 980.2.2 requires LSPs who assume responsibility for a legacy system to continue the same level of service. If legacy systems are to be replaced then detailed migration plans are required to be produced for approval, para 980.4. One of the assumptions is that "existing infrastructure/services will be used wherever possible in order to minimise duplication and enable earlier implementation of the IRCS".

12

At the commencement of its investigation OFT invited comments from third parties and got them from thirty interested parties, including representatives of the purchasing departments of the national health authorities. As I have already indicated the Issues Letter was sent to the merger parties on 30th September 2003. It set out what were described as main background assumptions with regard to EPRs and LIMS.

13

On the basis of those assumptions the letter set out nine competition concerns. It described them as...

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