Select Committee on Constitution Minutes of Evidence


Memorandum by the Competition Appeal Tribunal

THE ACCOUNTABILITY OF REGULATORS TO CITIZENS AND PARLIAMENT

THE CREATION OF THE COMPETITION APPEAL TRIBUNAL ("CAT")

Prior to the entry into force of the Enterprise Act 2002

  1.  The origins of the CAT lie in the enactment of the Competition Act 1998 ("CA98") which represented the first major change to United Kingdom competition law for almost a quarter of a century.

  2.  The CA98 replaced the Restrictive Trade Practices Act 1976, the Resale Prices Act 1976 and the majority of the Competition Act 1980. The old legislation was thought to be unduly technical, and not to contain sufficient or effective sanctions against genuinely harmful anti-competitive conduct. The CA98 introduces two prohibitions based on Articles 81 and 82 of the EC Treaty: one of anti-competitive agreements ("the Chapter I prohibition"); the other of anti-competitive conduct by undertakings enjoying a dominant position ("the Chapter II prohibition").

  3.  The CA98 gives the competition authorities (ie the Office of Fair Trading ("OFT") and the sectoral regulators) wide powers to investigate undertakings believed to be infringing either prohibition. These powers are similar (but not identical) to those enjoyed by the European Commission in enforcing Articles 81 and 82 of the EC Treaty. In addition, financial penalties of up to a maximum of 10% of the turnover of the infringing undertaking in the United Kingdom for up to three years may be imposed for an infringement.

  4.  The OFT[1], has principal responsibility for the day-to-day operation of the regime under the CA98. This includes conducting investigations deciding whether the prohibitions have been infringed and taking enforcement measures including the imposition of fines. Where agreements or conduct being considered under the CA98 concern the regulated utilities, the OFT shares jurisdiction concurrently with the relevant sectoral utilities regulators in telecoms, gas, electricity, water, and railways.

  5.  In light of the fact that considerable power has been conferred on the OFT and the sectoral regulators to impose penalties on undertakings, Parliament thought it necessary by means of sections 45 to 49 of the CA98 to establish a mechanism for appealing from decisions of the OFT and the sectoral regulators. Parliament did not consider that the previous judicial review process constituted an adequate remedy and therefore made it possible for undertakings to appeal against the substance and not just the legality or reasonableness of a United Kingdom competition authority's ruling.

  6.  Any party to an agreement and any person in respect of whose conduct the OFT or regulator has made a decision within the meaning of section 46(3) of CA98, may appeal against that decision. In addition, a person who is not the subject of a decision but who demonstrates that they have "sufficient interest" in the decision, may also appeal against that decision.

  7.  In order to give effect to these rights of appeal the CA98 created a new specialist appeals body which for various, mainly pragmatic reasons such as access to support services, was originally located within the structure of the Competition Commission. The new appeals body was therefore known as the Competition Commission Appeal Tribunals ("CCAT").

  8.  It will be remembered that the Competition Commission although a new institution, established in April 1999 pursuant to section 45(1) of the CA98, was also the successor body to the Monopolies and Mergers Commission ("MMC"), which carried out inquiries and reported to the Secretary of State on merger and monopoly situations referred to it under the Fair Trading Act 1973 as well as carrying out various regulatory inquiries.

  9.  Until April of this year (when the latest wave of institutional change, leading directly to the creation of the CAT, took place under the Enterprise Act 2002), the Competition Commission was therefore an institution with two "sides" to its work: a "reporting side" (the former MMC) and an "appeals side"(the CCAT). The reporting side was headed by the Chairman of the Competition Commission and the appeals side was headed by the President of the CCAT.

  10.  Despite the fact that during the period April 1999 to March 2003 the reporting and appeals sides were part of the same overall organization, the work of each side was carried out completely independently and separately from the other side. For all purposes the President of the CCAT had no involvement in or responsibility for the work of the reporting side and the Chairman of the Competition Commission as the head of the reporting side was in a similar position with regard to the work of the appeals side.

Institutional changes to the Competition Commission made by the Enterprise Act 2002

  11.  On 1 April 2003 a number of provisions of the Enterprise Act 2002 were brought into force which changed the institutional structure outlined above. [2]

  12.  For present purposes, the principal effect of these provisions was to transform the CCAT into a new Tribunal called the Competition Appeal Tribunal ("the CAT") which, as the change of name indicates, is no longer part of the Competition Commission but an entirely separate and independent institution.

  13.  The Competition Commission now solely consists of the former reporting side (or former MMC) dealing with:

    —  Merger and market investigations according to terms of reference set by the OFT and/or Secretary of State.

    —  In relation to the privatized utilities, licence modification investigations upon terms of reference set by the sectoral regulators. [3]

  14.  As from 20 June 2003, the Competition Commission will no longer report to the Secretary of State in merger and market investigations but will determine the matter itself, subject to a review by the CAT: see further below.

THE STRUCTURE AND ORGANISATION OF THE CAT

  15.  Cases are heard before tribunals consisting of three members (either the President or a legally qualified Chairman and two other members) appointed by the President.

  16.  The office of President is a full time appointment, equivalent to that of a High Court judge. The present holder of the office is Sir Christopher Bellamy. He was appointed Queens Counsel in 1986. From 1992 to 1999 he was a judge of the Court of First Instance of the European Communities. He also sits as a Deputy High Court judge in the Administrative Court, as a judge of the Employment Appeal Tribunal, and as a Recorder of the Crown Court. He has published numerous articles and a textbook on European competition law now in its fifth edition. Sir Christopher Bellamy is currently President of the European Association of Competition Law Judges.

  17.  The other members of the CAT serve on a part-time basis. There are currently twenty Appeal Tribunal members with backgrounds in legal, economic, accounting, business and other relevant disciplines. Whilst their biographical details are set out in Annex I [not printed] to this letter, the Committee may be interested to observe that four of the members are distinguished professors of economics. Eight members are lawyers of whom several sit on various other tribunals. Two are former members of the Restrictive Practices Court. One member is an accountant. In addition, one is a member of the Radio Authority.

  18.  The CAT's staff is headed by the Registrar and consists of three lawyers (who have previously worked in major City law firms and at the Bar) who assist the President and the Tribunal members in analysing case documentation and legal issues and producing judgments together with a further five clerical and secretarial staff.

  19.  Since the creation of the Tribunal the President has had a statutory obligation to arrange such training for Appeal Tribunal members as he considers appropriate. The President has therefore organised an ongoing detailed programme of training seminars for Appeal Tribunal members covering every aspect of UK and EC competition law, relevant economic concepts and procedural matters. The training programme also includes the use of case studies (where members are required to analyse particular legal and economic situations), as well as lectures on the structure of each of the regulated industries from which CA98 appeals may be made (water, gas, electricity, telecommunications and railways), with presentations conducted with the assistance of representatives of each of the regulatory offices.

THE CONDUCT OF PROCEEDINGS BEFORE THE CAT

  20.  In relation to its role under the CA98 the CAT is required to address matters of substance as well as the legality or fairness of the particular decision. In other words the CAT must determine a CA98 appeal on the merits. The CAT may therefore reconsider the detailed economic as well as legal analysis applied by the OFT or sectoral regulator and take any decision that the OFT or sectoral regulator could have taken. Where further investigation is required, the case may be remitted in whole or part back to the OFT or sectoral regulator[4].

  21.  The procedure governing appeals to the Appeal Tribunals is currently set out in the Competition Appeal Tribunal Rules 2003, SI 2003 No 1372.

  22.  Those procedures are explained in general terms in the Guide to Appeals under the Competition Act 1998, produced by the CCAT in June 2000 ("the Guide"). A copy is enclosed at Annex II. [5][not printed]

  23.  The central feature of the Appeal Tribunal's method of operation is a tightly controlled procedural regime in which cases are actively managed in order to minimise the traditional difficulties presented by competition cases—those of byzantine complexity of issues, hypertrophic growth of documentation and evidence and inordinate duration of proceedings.

  24.  The principles underpinning the CAT's management of cases are: (i) full and early disclosure in writing of the appellants' arguments, with all relevant documents and witness statements; (ii) early and regular case management conferences, in order to determine the main issues in the case, set a timetable, and deal with interlocutory issues; (iii) short and structured oral hearings concentrating on the main points; (iv) effective fact finding procedures; and (v) a target period (normally six months in a straightforward case) in which the proceedings are to be completed. The CAT's practice is to hold the first case management conference as soon as possible after an appeal has been received, even before the service of a defence, and then to hold subsequent case management conferences as required.

  25.  As a court the CAT has considerable power to control the proceedings before it including the power to:

    —  Strike out pleadings.

    —  Summon witnesses and require the production of documents.

    —  Debar parties from taking any further part in proceedings.

    —  Receive payments in to settle proceedings.

    —  Order security for costs.

    —  Order the payment of costs and interest.

    —  Order interim relief to prevent irreparable damage and to protect the public interest.

  26.  In addition the CAT has power to make reference to the European Court of Justice on a question of Community law under Article 234 of the EC Treaty.

  27.  The CAT's jurisdiction extends to the whole of the UK, allowing for a consistent approach to the development of competition law across the whole country. As a result of this, further appeal on a ruling of the CAT may be made to the appropriate court, with permission, on a point of law arising from a decision of a tribunal, or from any decision of a tribunal as to the amount of a penalty. In relation to proceedings in England and Wales, the appropriate court is the Court of Appeal; in relation to Scotland, it is the Court of Session; and, in relation to Northern Ireland, it is the Court of Appeal in Northern Ireland.

  28.  Another noteworthy point is that under its rules of procedure, the Appeal Tribunal can appoint experts to advise it on any matter on which the Tribunal does not possess its own expertise.

THE CASES TO DATE

  29.  The CAT (in its former incarnation as the CCAT) heard the first appeals under the CA98 in the year April 2001 to March 2002. Five appeals and two applications for interim relief were received during the year, giving rise to 12 judgments. A number of judgments dealt with interlocutory or procedural issues, but four judgments dealt with substantive issues involving novel and complex points of law and the interpretation or application of complex economic and commercial facts. One case (General Insurance Standards Council or "GISC") involved points of central importance to the whole of the UK insurance industry and concerned the relationship between regulatory rules and competition law. Another case (Napp Pharmaceuticals) was a very important decision in both UK and European terms concerning predatory and excessive pricing. The third case (Aberdeen Journals) was also an important case in emphasising the need for proper market analysis in the application of the CA98 and the fourth case (Bettercare) concerned the type of matter that can be appealed under, and the types of activities covered by, the CA98.

  30.  The Appeal Tribunal's rules of procedure and case management powers have proved effective. An interlocutory judgment in Napp on 10 July 2001 underlined the Tribunal's reluctance to grant extensions of time once a timetable has been agreed. As a result of the emphasis on written procedure, the oral hearing stage before the Tribunal has been relatively short, with complex issues being argued in hearings taking 1Ö days (GISC), four days (Napp), one day (Aberdeen Journals) and one day (Bettercare). The appeal in GISC was decided in three months from start to finish. The appeal in Napp, a novel and complex case, was decided in 7Ö months (following a 20 month inquiry by the OFT). In Aberdeen Journals and Bettercare, the interim judgments were delivered six months and four months respectively after the lodging of the appeals. The President's interim measures judgment in Napp was given 11 days after the request for interim measures was made, but could have been given much sooner had the particular circumstances been more urgent.

  31.  In the year April 2002 to March 2003, the CAT has been called upon to examine questions relating to decisions taken not only by the OFT but also by several of the sectoral regulators. The case of Freeserve.com plc v Director General of Telecommuncations involved an examination of the interface between the Telecommunications Act 1984 and the CA98 and the scrutiny of the Director's decisions with regard to the broadband internet services sector. Currently before the Tribunal is the case of Aquavitae (UK) Limited v Director General of Water Services where the issue is whether, on the particular facts, a course of action taken by the Director constitutes a decision made under the CA98.

  32.  Finally it is worth noting that the CAT has now heard cases in Scotland and Northern Ireland as well as England and Wales.

  33.  For background information, a number of tables relating to the CAT's caseload are set out at Annex III [not printed].

FORTHCOMING CHANGES TO THE CAT'S JURISDICTION

The Enterprise Act 2002

  34.  The Enterprise Act has extended the CAT's jurisdiction in a number of respects which build upon the CAT's capacity to handle large and complex economics related issues in fast timescales. Briefly the proposed changes (to come into force on 20 June 2003) are:

    —  That any person aggrieved by a decision of the OFT, the Competition Commission or the Secretary of State in relation to a merger investigation may apply to the CAT for a review of that decision.

    —  There will be a similar statutory right to apply to the CAT for a review of decisions made by the OFT, sectoral regulator, the Competition Commission and the Secretary of State in respect of market investigations A review by the CAT in relation to merger and market investigations will be a judicial review of the administrative body's decision, on the basis of the principles of administrative law applied in the High Court. The thinking behind this is that the CAT will already be up to speed with the economic and regulatory background and will be able to understand the specialized subject matter with less need for lengthy oral explanation by lawyers. The CAT membership is likely to be expanded to allow for a greater degree of participation by members of the judiciary in chairing particular cases, so the legal expertise of the CAT in applying judicial review principles should in practice match that of the High Court. Overall, the CAT should be able to use its case management powers to ensure that cases are dealt with authoritatively within appropriate timescales.

    —  The CAT will be able to hear claims for damages caused as a result of anti-competitive practices. This will cover not only claims from individuals, but also claims made by representative bodies on behalf of groups of named and identified consumers. Such claims may only be made to the CAT where the OFT (or a sectoral regulator) or the European Commission has made a decision that there exists an infringement of competition law, and the appeals process has been exhausted.

The Communications Bill

  35.  The Communications Bill currently before Parliament provides for a right of appeal to the CAT in respect of decisions made by OFCOM under Part 2 of the Bill (Networks, Services and the Radio Spectrum)[6]. This has been thought appropriate given that:

    —  The CAT is already the appeal body for the sector under the CA98. Involving the CAT now as the appeal body under the Communications Bill will enable a consistent approach to be taken to regulatory and competition matters in the sector.

    —  Under the CA98 the CAT already decides on the application of a dominance based competition test and the concept of "significant market power" contained in the Bill is closely related to dominance in UK and European competition law.

    —  Members of the CAT (and especially the President) have long experience in working with European case law and legislation upon which many of the concepts of the Communications Bill are based.

    —  The CAT is therefore well placed to interpret the issues in a particular case against the wider European telecoms regulation and competition law background which will aid the development of a consistent approach in European telecoms markets.

    —  The relevant EC Directives (bringing into force a new European-wide system of regulation of the communications sector) provide for a right of appeal to a body that is independent of the parties involved. The CAT's procedure ensures impartial, and transparent consideration of cases and culminates in a hearing at which all parties are able to argue their case before the Tribunal and in the presence of each other.

    —  The CAT is a body which has, in the terms of the relevant EC Directive[7], "appropriate expertise available to it"—in the form of the expertise of its membership and its ability to appoint experts to advise it on particular issues. Such issues could include likely developments in a particular market or whether a particular course of action is consistent with accepted practice in the regulation of utilities.

    —  In its performance to date under the CA98 the CAT has demonstrated its ability to deal with large cases raising complex and novel issues quickly and robustly.

Charles Dhanowa

Registrar

26 June 2003


1   Prior to the entry into force of section 2(2) of the Enterprise Act 2002 on 1 April of this year, the significant regulatory powers under the CA98 were vested in an individual, the Director General of Fair Trading. That office was abolished on 1 April 2003, and the CA98 powers are now vested in the Board of the OFT. Back

2   Section 12 and Schedule 2 Enterprise Act 2002. Back

3   This type of inquiry is often termed "an appeal" but it is not an appeal in the classic sense being rather an inquiry prompted by the regulator in response to a refusal by the regulated undertaking to accept the regulator's proposed modifications to the relevant licence. The role of the Competition Commission is to investigate whether the state of affairs, in the absence of a licence modification, may be expected to operate against the public interest and if it does to formulate appropriate modifications to the licence. As a form of challenge to regulatory action on the part of regulated undertakings and/or other affected bodies or citizens, this type of inquiry represents at best an oblique form of "appeal" the only other means of challenging regulators decisions being an application for judicial review in the courts. Back

4   Schedule 8, paragraph 3(2)(a) CA98. Back

5   A new edition is currently being prepared to take account of the CAT's new functions under the Enterprise Act 2002. Back

6   Some pricing issues are to be referred by the CAT to the Competition Commission, whose decision is reviewable by the CAT. Back

7   EC Framework Directive 2002/21. Back


 
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