R v Monopolies and Mergers Commission, ex parte South Yorkshire Transport Ltd and Another

JurisdictionEngland & Wales
JudgeTHE MASTER OF THE ROLLS,LORD JUSTICE NOURSE,LORD JUSTICE BUTLER-SLOSS
Judgment Date28 November 1991
Judgment citation (vLex)[1991] EWCA Civ J1128-2
Docket Number91/1115
CourtCourt of Appeal (Civil Division)
Date28 November 1991

[1991] EWCA Civ J1128-2

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

QUEEN'S BENCH DIVISION

(MR. JUSTICE OTTON)

Royal Courts of Justice

Before:

The Master of the Rolls

(Lord Donaldson)

Lord Justice Nourse

Lord Justice Butler-Sloss

91/1115

The Queen
and
Monopolies and Mergers Commission and the Secretary of State for Trade and Industry
Appellants
Ex Parte South Yorkshire Transport Limited and South Yorkshire Passenger Transport Authority
Respondents

THE HON. MICHAEL BELOFF Q.C. and MR. WILLIAM CHARLES (instructed by the Treasury Solicitor) appeared for the Appellants.

MR. ANTHONY LESTER Q.C., MR. DAVID PANNICK and MR. MARK SHAW (instructed by Messrs. Simpson Curtis, Leeds) appeared for the Respondents.

THE MASTER OF THE ROLLS
1

The Monopolies & Mergers Commission ("the Commission") appeals against a declaration by Otton J. on 22nd March 1991 that its decision, contained in a report published on 1st August 1990 on a merger reference by the Secretary of State, was unlawful as was a decision of the Secretary of State published on the same day to accept the Commission's conclusions and recommendations.

2

Let it be said at once that the unlawfulness alleged, and found by Otton J., is purely technical in character and turns upon a very short point of construction, namely, the meaning of "in the United Kingdom or in a substantial part of the United Kingdom" in section 64(3) of the Fair Trading Act, 1973. It is however of considerable general importance in the context of the jurisdiction of the Commission under sections 64 to 75 of the Act.

3

In an admirable judgment Otton J. set out the legislative history and framework beginning with the Monopolies & Restrictive Practices (Inquiry and Control) Act 1948, which created the Monopolies Commission. As its name implied, it was concerned with monopolies as contrasted with mergers. The test of a monopoly situation set out in section 3(1) of the Act was that "at least one third of all the goods of that description which are supplied in the United Kingdom or any substantial part thereof are supplied by or to any one person…" (emphasis supplied). This was followed by the Monopolies & Mergers Act 1965 which extended the remit of the Monopolies Commission to mergers and the supply of services, retaining for both a one third market share test, the market again being "the United Kingdom or any substantial part thereof" (see sections 2(3)(a) and 6(l)(b)(i)). In relation to mergers it also introduced, as an alternative to the market share test, the criterion that the value of the assets taken over exceeded £5 million (see section 6(1)(b)(ii)).

4

The Fair Trading Act 1973 gave the Monopolies Commission its present name and differentiated between monopolies and mergers. The definition of a monopoly situation was amended so as to refer to the supply of goods or services in the United Kingdom as a whole and the one third market share was reduced to a quarter (see sections 6(1) and 7(1)). However section 9(1) provided that:-

"For the purposes of a monopoly reference, other than a reference relating to exports from the United Kingdom, the person or persons making the reference may, if it appears to him or them to be appropriate in the circumstances to do so, determine that consideration be limited to a part of the United Kingdom."

5

In a slightly convoluted way Parliament was thus defining a monopoly situation by reference to share in the market in the United Kingdom as a whole or in a specified "part"— not "substantial part"—of the United Kingdom. By contrast in the case of mergers the relevant market remained "the United Kingdom or a substantial part of the United Kingdom", although the one third market share was reduced to one quarter and the alternative test of asset value taken over was increased to £30 million (see section 64 "merger situation qualifying for investigation"). In the present case there is no dispute that the one quarter market share condition is met if the reference area specified was properly to be regarded as "a substantial part of the United Kingdom" and that the alternative asset value test is inapplicable.

6

The starting point for a merger reference is subsection (1) of section 64 which empowers the Secretary of State to make a reference to the Commission "where it appears to him that it is or may be the fact that two or more enterprises…have…ceased to be distinct enterprises, and that either:-

(a) as a result, the condition specified in…subsection (3) of this section prevails, or does so to a greater extent, with respect to the supply of…services of any description, or

(b) [asset value test]"

7

Subsection (3) of section 64 is in the following terms:-

"The condition referred to in subsection (1)(a) of this section, in relation to the supply of services of any description, is that the supply of services of that description in the United Kingdom, or in a substantial part of the United Kingdom, is, to the extent of at least one-quarter, either—

(a) supply by one and the same person, or supply for one and the same person, or

(b) supply by the persons by whom the relevant enterprises (so far as they continue to be carried on) are carried on, or supply for those persons."

8

Section 69(3) empowers the Secretary of State to frame a merger reference in such a way as to confine the Commission's investigation "to the supply of…services in a specified part of the United Kingdom". The reference having been made, section 69(1) requires the Commission to investigate and report upon (a) whether a merger situation qualifying for investigation has been created, and (b) if so, whether the creation of that situation operates or may be expected to operate against the public interest.

9

In the instant case the Commission answered both questions in the affirmative and the challenge is as to whether, on the facts found by the Commission, there could as a matter of law be "a merger situation qualifying for investigation".

10

South Yorkshire Transport Limited is a public transport company formed under section 59 of the Transport Act 1985 which provides local services to a greater or lesser extent in the counties of South Yorkshire, West Yorkshire, Derbyshire, Nottinghamshire and Humberside. South Yorkshire Passenger Transport Authority is the owner of the entire share capital in the transport company and has a statutory policy making function in relation to local services in the South Yorkshire area. As such it exercises a variety of powers and has a variety of duties under Part 4 of the Act in relation to the transport company and, pursuant thereto, it authorised the acquisitions which led to the reference.

11

These acquisitions by South Yorkshire Transport Ltd. were of Sheffield and District Transport Company Ltd., Michael Groves, Sheafline (PSV) Ltd. and the Hallam Bus Company Ltd. (later replaced in the terms of the reference by SUT Ltd.). In making the reference the Secretary of State exercised his powers under section 69(3) by specifying the relevant part of the United Kingdom as being:-

"The county of South Yorkshire, the districts of Bolsover, Chesterfield, Derbyshire Dales, High Peak and North East Derbyshire in the county of Derby and the district of Bassetlaw in the county of Nottingham."

12

The crucial and indeed the only issue in this appeal is whether the reference area can properly be described as "a substantial part of the United Kingdom". The importance of the appeal from the point of view of the Secretary of State and of the Commission lies in the fact that, if the reference area cannot be so described, the probability exists that many mergers of bus undertakings will be found to be outside the Commission's investigative net.

13

The Commission gave its reasons for considering that the reference area was a substantial part of the United Kingdom in the following passages from its report:-

"2.4 In considering the phrase 'a substantial part of the United Kingdom', we had regard to the reasoning in our reports on the acquisition by Midland Red West Holdings Ltd. by Badgerline Holdings Ltd. (' the Badgerline report') and on the acquisition of Stagecoach (Holdings) Ltd. of Portsmouth CityBus Ltd. ('the Stagecoach Report'). We endorse the view taken in those reports that the words 'a substantial part of the United Kingdom' have to be considered in their statutory context, both in terms of section 64 itself and of other relevant provisions of the Act and also as a matter of general law. We have taken careful account of the detailed reasoning and citation of judicial decisions in the first of those reports. As in those reports, we take the view that the expression has the meaning of something real or important as distinct from something merely nominal. We also accept that as a general matter the word 'substantial' may have more than one meaning, as it is used sometimes in a relative sense, i.e. important or substantive in relation to a larger whole, and in the sense too of an absolute in terms of quantity or size. In the present connection, we believe that the former is the preferable meaning, and we have had regard to it in reaching our conclusion on this aspect.

2.5 We further consider that the phrase additionally involves both a quantitative and and qualitative assessment. In considering what quantitative and qualitative elements should be taken into account for this purpose, we had regard to the size of the reference area, its population; its social, political, economic, financial and geographic significance; and whether it had any particular characteristics that might render the area special or significant. These featured too in the previous reports and no additional relevant elements...

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