Interbrew SA and Another v Competition Commission and Another
| Jurisdiction | England & Wales |
| Judgment Date | 23 May 2001 |
| Neutral Citation | [2001] EWHC 367 (Admin) |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | CO/402/2001 |
| Date | 23 May 2001 |
[2001] EWHC 367 (Admin)
IN THE HIGH COURT OF JUSTICE
ADMINISTRATIVE COURT LIST
QUEEN'S BENCH DIVISION
The Hon. Mr. Justice Moses
CO/402/2001
MR. JONATHAN SUMPTION Q.C. and MR. NICHOLAS GREEN Q.C. and MISS MONICA CARSS-FRISK Q.C. (instructed by Messrs Simmons & Simmons) appeared on behalf of the Claimants.
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.
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:
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;
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
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.
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…..
(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;
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) it shall itself deal with the case in order to maintain or restore effective competition on the market concerned, or
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) 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
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...
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