Majority and Minority Shareholders Commuting between Dublin, Brussels and London
Associate, Linklaters LLP; DPhil (Oxon)
Keeping with this blog’s recent focus on aviation related cases, this post will look into a decision by the Court of Appeal on whether the European Commission’s exclusive jurisdiction to review a concentration precludes the Competition Commission from simultaneously looking into a minority shareholding in the target company – and, in particular, whether the Competition Commission can investigate Ryanair’s minority stake in Aer Lingus when the European Commission is pursuing a merger review of a proposed acquisition of control by the former over the latter.
The Factual Background
For a proper understanding of this case an extensive review of the factual background is required. This description is quite long, as the disputes between Ryanair and Aer Lingus have been bouncing around regulators and courts for the better part of a decade. A short description follows; for a more detailed review of the factual background of this case, please see Annex I below.
In 2006 Ryanair acquired a minority stake in Aer Lingus with a view to acquire control over it. This proposed acquisition was prohibited by the European Commission (the “Prohibition Decision”). Ryanair appealed this Prohibition Decision, but in the meantime the OFT commenced an investigation into Ryanair’s minority stake in Aer Lingus. This investigation was subject to a decision by the Court of Appeal, who held in Ryanair Holdings plc v Office of Fair Trading (the “Ryanair C/A Decision”) that, inasmuch as the minority stake was held to be part of the concentration, and until Ryanair’s appeal of the Prohibition Decision had been decided without possibility of further appeal, it was evident that concurrent investigations in the UK and in Europe would be both oppressive and mutually destructive; and that the duty of sincere cooperation went beyond avoiding inconsistent decisions and extended to overlapping investigations, requiring the OFT to desist from making any reference to the Competition Commission during that period.
Ryanair’s appeal of the Prohibition Decision having been dismissed by the General Court and no further appeal being possible, the OFT referred Ryanair’s acquisition of a minority stake in Aer Lingus to the Competition Commission on 15 June 2012.
On 19 June 2012, Ryanair renewed its bid for control of Aer Lingus, and on 5 July 2012 notified the European Commission of this. The process of merger control before the European Commission is on-going (see Case COMP/M.6663).
On 10 July 2012, the Competition Commission informed Ryanair and Aer Lingus of its decision to continue the investigation, thereby rejecting Ryanair’s submissions that the investigation should be halted since it infringed on the European Commission’s exclusive jurisdiction for merger control. On 13 July 2012 Ryanair applied for the Competition Appeal Tribunal to quash or stay this decision. It is with an appeal from the Competition Appeal Tribunal’s decision that this post is concerned with.
The relevant question concerns the relative competences of the European Commission and the Competition Commission in what concerns merger control. The supervision and control of mergers within the European Union and its Member States operates at two levels. At the European Union level, there is a jurisdiction exercisable by the European Commission under the EC Merger Regulation (“ECMR”). At the Member State level, in the United Kingdom there is a jurisdiction exercisable by the OFT and the Competition Commission under the 2002 Enterprise Act. The respective jurisdictions are triggered by different tests, with the UK test, referring to “material influence”, being more expansive than the EU’s jurisdiction, which is triggered by the acquisition of “definitive influence.”
The ECMR implements a one-stop shop for merger control at EU level, according to which, in the words of Article 1(1) ECMR, the Regulation “shall apply to all concentrations with a Community dimension as defined in this Article”. A corollary of this is expressed under Article 21 ECMR, that no Member State shall apply its national legislation on competition to any concentration that has a Community dimension.
Ryanair argued, both before the Competition Appeal Tribunal and the Court of Appeal, that the assessment of its 29.6% stake in Aer Lingus fell within the scope of the exclusive jurisdiction of the European Commission under Article 21 ECMR; and that even if Article 21 ECMR did not apply, it resulted from the Ryanair C/A Decision that the duty of sincere cooperation precluded, as a matter of law, the continuation of the investigation because this was a situation of “overlapping jurisdictions”.
The Competition Appeal Tribunal held that the European Commission’s jurisdiction extends only to the shares that are the subject of Ryanair’s most recent public bid, and it included no jurisdiction over Ryanair’s minority shareholding. It concluded that, in this case, the OFT and the Competition Commission’s jurisdiction was unaffected by Article 21(3) ECMR and that the duty of sincere cooperation did not object to the pursuit of the Competition Commission’s investigation.
The Competition Appeal Tribunal’s decision was appealed to the Court of Appeal, where the argument focused on the “Ryanair C/A Decision”, which as we have seen was concerned with the same minority stake. The Court of Appeal held that the cases could be distinguished because the concept “overlapping jurisdictions” should only apply to situations where, because of on-going proceedings before the European Commission and EU Courts, Article 21 ECMR is contingently applicable, depending on the outcome of those proceedings. In such a case, any investigation by the OFT (or the Competition Commission) conducted prior to exhaustion of the European process would run the risk (depending on how the final European decisions went) of interfering with a jurisdiction belonging exclusively to the European Commission. It was held that this was manifestly not the case here.
Concerning the duty of sincere cooperation, the Court of Appeal noticed that: “A Member State’s duty of sincere co-operation under Article 4(3) TEU subsists at all times. Whether and when it requires the Member State to take or to desist from taking any particular action, and precisely what is required to fulfil it, are highly fact sensitive. There may be a choice of several different ways, with different timing, to satisfy the duty. Provided that the duty is fulfilled, it is for the Member State to choose the most appropriate course of action to take.“
The Court of Appeal held that the Competition Commission pursuing its investigation did not infringe the duty of sincere cooperation, since it was common ground: (i) that the European Commission’s jurisdiction did not extend to Ryanair’s minority shareholding; (ii) that the European Commission’s decision would be delivered before the Competition Commission’s decision; and (iii) even if the Competition Commission’s investigation were to be completed and its report published first, the Competition Commission would have power under s.41(3) of the 2002 Enterprise Act, if it saw fit in the circumstances then prevailing and taking into account its duty of sincere co-operation, to defer such remedial action until the publication of the results of the European Commission’s investigation and to re-consider remedial action in the light of the reasoning and decision of the European Commission.
This case raises a number of interesting questions on the interplay between EU and UK merger control. A preliminary point to these questions is why Ryanair’s minority stake was deemed to be part of a concentration with European dimension in one case and not in another. Even though the provisions of the Enterprise Act were relevant to the case, the questions at stake were effectively of European law – about how to interpret the ECMR and about the requirements imposed by the duty of since cooperation on the Competition Commission.
The Court of Appeal had recourse to Recital 20 ECMR, which states that it is: “appropriate to treat as a single concentration transactions that are closely connected in that they are linked by condition or take the form of a series of transactions in securities taking place within a reasonably short period of time.” What a short period of time is can be better understood from the European Commission’s Jurisdictional Notice, which refers at paras. 38-40 to Article 3 ECMR. According to the Notice, Article 3 ECMR implies that it makes no difference whether control was acquired by one or several legal transactions, provided that the end result constitutes a single concentration. Referring to the General Court’s decision in Case T-282/02 Cementbouw v Commission, the Notice concludes that “in order to determine the unitary nature of the transactions in question, it is necessary, in each individual case, to ascertain whether those transactions are interdependent, in such a way that one transaction would not have been carried out without the other”.
This insight, and the case law of the European courts, would seem to be obvious starting points for the Court of Appeal’s analysis. What is more, technically, this case would seem to be suitable for a preliminary reference to the CJEU, as the question of whether an investigation into a pre-existing minority shareholding is precluded when the European Commission will have to consider that shareholding as part of its merger control jurisdiction does not seem to fall within the scope of the acte claire doctrine.
It is therefore somewhat surprising to find that, even though there was no preliminary reference, neither the case law of the European courts nor the Jurisdictional Notice were referred to by either the CAT or the Court of Appeal. Instead the focus was squarely on whether this was a case of “overlapping jurisdictions”, a concept that does not appear in the relevant European instruments or case law. This leads to a strange bent in the reasoning, which focus on a concept developed by English courts – that of “overlapping jurisdictions” – to decide a matter governed by EU law.
The Court of Appeal may have tried to circumvent this outcome by noting at para. 58 that: “The description “overlapping” is, however, strictly inaccurate since, as between the EC, on the one hand, and Member States on the other hand, the jurisdictions are mutually exclusive. If the jurisdiction of the EC is engaged, it has exclusive jurisdiction. If it is not engaged, then, as between the EC and the Member State, the jurisdiction of the Member State is necessarily exclusive.”
This strikes me as being obviously correct, but it begs the question: if the question at stake is concerned with the jurisdiction of the European Commission, then it is also a matter of EU law whether this jurisdiction is activated. The Court of Appeal dealt with this by stating that it was “common ground in this court (although it was not before the CAT) that the EC’s jurisdiction does not extend to Ryanair’s minority shareholding”. Should this be the case, indeed the decision could be seen as correct both as a matter of EU law and from a practical standpoint: Aer Lingus and the OFT had long been concerned about Ryanair’s minority stake in Aer Lingus; Ryanair was benefiting from the European Commission’s exclusive jurisdiction in matters of merger control to delay any assessment of its minority shareholding in Aer Lingus; and the probability of the Competition Commission arriving at a decision contradicting that of the European Commission was small to non-existent. Accordingly, there seemed to be no harm in allowing the Competition Commission to pursue its investigation, with both the national and European spheres of competence and the duty of sincere cooperation having been respected. Of course, due to this decision Ryanair and its lawyers’ capacity to deal with the multiple, and undoubtedly very similar information requests it will receive from both the European Commission and the Competition Commission will be put under great stress. But that is neither here nor there from a legal perspective.
However, it is doubtful that this “common ground” is correct: what was clear was that the European Commission had previously declined jurisdiction over Ryanair’s minority shareholding on its own, which was accepted as a legitimate decision by the European courts. But the question before the Competition Appeal Tribunal and the Court of Appeal was whether this would still be the case when that minority shareholding is being assessed by the European Commission under its powers of merger control, a question not of fact or of English law, but of European law. And if this assumption falls, the reasoning of the Court seems to fall with it.
If this “common ground” is not accepted, it is hard to see how the Court of Appeal could both hold at para. 60 that it is relevant that “even if there is a theoretical possibility that the analysis and decision of the Competition Commission on Ryanair’s minority shareholding could be relevant to, and even inconsistent with, those of EC on its investigation of the public bid, and vice versa, (…) the EC’s decision will in fact be delivered first”; and simultaneously sustain at para. 66 that: “it is self-evident that concurrent investigations in the UK and in Europe, when only one of them has jurisdiction, would be both oppressive and mutually destructive”, and that if this was the case the Competition Commission would have to stop its investigation.
In the end, the Court of Appeal reached what is instinctively the “correct outcome” by turning a debatable question of law into a commonly accepted datum; and in the process solved a question of European law by looking into existing precedent under English law. Strange and creative are indeed the ways in which domestic and European legal orders interact.
(i) Ryanair attempts to takeover Aer Lingus
Between 27 September and 5 October 2006 Ryanair acquired a 19.2% shareholding in Aer Lingus. On 5 October 2006 Ryanair announced its intention to launch a public bid for the entire share capital of Aer Lingus. The public bid was made on 23 October 2006. At the end of October, Ryanair notified its concentration to the European Commission in accordance with article 4(1) ECMR.
By 28 November 2006, Ryanair had acquired up to 25.2% of the equity in Aer Lingus. By a decision made by the European Commission on 27 June 2007 (“the Prohibition Decision”) it was declared, pursuant to Article 8(3) ECMR, that the Ryanair / Aer Lingus concentration was incompatible with the common market and was therefore prohibited. The European Commission also stated that, in the circumstances, Ryanair’s acquisition of its 25.2% holding formed part of the same “concentration” as the public bid examined by it.
In the meantime, on 25 January and 7 June 2007, Aer Lingus had asked the European Commission to require Ryanair to divest itself of the shares in Aer Lingus it had already acquired. On the same day as the Prohibition Decision was issued, 27 June 2007, the European Commission indicated to Aer Lingus that now that the proposed merger of Ryanair with Aer Lingus was prohibited the European Commission had no power to order Ryanair to divest itself of the shares in Aer Lingus it had already acquired, but suggested that the relevant body in the UK might. In a letter dated 3 August 2007 the OFT indicated its belief that Article 21(3) ECMR precluded it from doing so.
On 17 August 2007, Aer Lingus invited the European Commission: (1) to open proceedings against Ryanair under Article 8(4) ECMR; (2) to adopt interim measures under Article 8(5) ECMR to prevent Ryanair from exercising the voting rights of the shares it had acquired; and, alternatively, (3) to state formally that it did not have the power to adopt such measures. On 11 October 2007 the European Commission formally determined that it did not have power to open proceedings against Ryanair or to order Ryanair to dispose of its holding in Aer Lingus, and it also formally determined that it did not have the power to interpret Article 21 ECMR in the manner Aer Lingus sought (the “Interim Measures Decision”).
Aer Lingus appealed the Interim Measures Decision, while Ryanair appealed the Prohibition Decision. On 6 July 2010 the General Court dismissed, in separate judgments, the Ryanair appeal (Case T-342/07 – Ryanair Holdings plc v Commission) and the Aer Lingus appeal (Case T-411/07 – Aer Lingus Group plc v Commission). Neither judgment was appealed, with the period for appealing expiring on17 September 2010.
(ii) The Original Investigation of the Minority Shareholding
On 30 September 2010, the OFT sent a notice under section 31 of the 2002 Enterprise Act to Ryanair requiring it to produce specified information which the OFT considered to be relevant to a preliminary merger investigation. The OFT’s position was that its investigation was in time because it could not have been commenced until the appeals to the General Court had ended. Ryanair objected on the ground that the four month time limit for such a reference by the OFT under s.24 of the Enterprise Act, as extended by s. 122 of the Enterprise Act, had expired on 28 October 2007. The OFT disagreed, and on 7 January 2011 Ryanair commenced the Ryanair/OFT proceedings in the Competition Appeal Tribunal for a declaration that the time within which OFT might refer any merger situation arising from the acquisition, actual or proposed, by Ryanair of shares in Aer Lingus had expired.
On 28 July 2011 the Competition Appeal Tribunal dismissed the application. Ryanair appealed to the Court of Appeal. The Court, in its reasoning in Ryanair C/A Decisionhanded down on 22 May 2012 at paragraph , held in the way to find that the deadline for the OFT’s investigation had been extended by the European procedures, that “it was evident that concurrent investigations in the UK and in Europe would be both oppressive and mutually destructive” and that the duty of sincere cooperation goes beyond avoiding inconsistent decisions and extends to overlapping jurisdictions. Again, in paragraph , the Chancellor stated that “[t]he duty of sincere cooperation, which had existed at all material times, necessarily required OFT to desist from making any reference during that period”, i.e. the period between the issuance of the Prohibition and Interim Measures Decisions, and the end of the appeal period from the General Court’s judgments on them.
(iii) The Current Investigation of the Minority Shareholding
On 15 June 2012, the Office of Fair Trading referred to the Competition Commission the completed acquisition by Ryanair Holdings plc of 29.82% of the share capital of Aer Lingus Group plc.
On 19 June 2012, Ryanair announced its intention to make a public bid for the entirety of Aer Lingus’ share capital (the “Public Bid”). On 20 June 2012, Ryanair informed the Competition Commission of the Public Bid, and invited the Competition Commission, at the very least, to stay its investigation, given the Public Bid. It also submitted a draft Form CO (the formal notification document) to the European Commission. The process before the European Commission is continuing (see Case COMP/M.6663).
On 10 July 2012, the Competition Commission informed Ryanair and Aer Lingus of its decision to continue the investigation, thereby rejecting Ryanair’s submissions that the investigation should be halted. Ryanair appealed this decision to the Competition Appeal Tribunal. It is with an appeal from the Competition Appeal Tribunal’s decision that this post is concerned with.
The opinions expressed above are the author’s own; and neither the author nor any of his colleagues at Linklaters that he is aware of were involved in this matter.