COMPETITION – Restriction or distortion of competition – Relevant merger situation – Company operating ferry service between Calais and Dover going into liquidation in France and ordered to make employees redundant – Ferry service ceasing – Liquidator selling assets including ships to company operating Channel Tunnel between Calais and Dover – Ferry service resuming operated by Channel Tunnel company but ships operated and crewed by another company – Whether relevant merger situation created – Whether competition authority having jurisdiction to prohibit Channel Tunnel company operating any ferry service from Dover using the passenger ships acquired from liquidated company – Enterprise Act 2002, s 23(2)

Societe Cooperative de Production SeaFrance SA v Competition and Markets Authority (Groupe Eurotunnel SA intervening)

[2015] UKSC 75

SC: Lord Neuberger of Abbotsbury PSC, Lord Clarke of Stone-cum-Ebony, Lord Sumption, Lord Reed, Lord Hodge JJSC 16 December 2015

The merger control provisions of the Enterprise Act 2002 were not limited to the acquisition of a business as a going concern. Therefore it did not necessarily follow from the cessation of the ferry service between Dover and Calais that the ferry operator no longer had “activities” so as to constitute an “enterprise” which, when acquired, created a relevant merger situation which lessened competition in the cross-Channel ferry market.

The Supreme Court so held, unanimously allowing the appeal of the Competition and Markets Authority from a decision on 15 May 2015 of the Court of Appeal (Tomlinson LJ and Sir Colin Rimer, Arden LJ dissenting) [2015] EWCA Civ 487 to allow an appeal by Societe Coopérative de Production SeaFrance SA (“SCOP”) from a decision of the Competition Appeal Tribunal (Roth J, Professor John Beath and Ms Joanne Stuart) [2015] CAT 1 on 9 January 2015 whereby it had upheld the authority’s conclusion in its remittal report of 27 June 2014 that assets acquired by the intervener, Groupe Eurotunnet SA (“GET”), from SeaFrance SA (in liquidation) constituted an “enterprise” and that a “relevant merger situation” had been created.

LORD SUMPTION JSC, with whom the other members of the court agreed, said that SeaFrance SA had operated a ferry service between Dover and Calais until it went into liquidation. In January 2012 the French court had formally placed SeaFrance SA in liquidation and ordered it to cease trading. Under French law, the consequence of that order was that all of the SeaFrance employees had to be made redundant within 15 days and a plan was required to be prepared within 15 days by the employer with a view to safeguarding the employment of those made redundant. Substantially all of SeaFrance’s assets had been acquired by GET, which was the parent company of the group which operated the Channel Tunnel between the United Kingdom and France. GET had acquired the assets as part of an arrangement with SCOP, a workers’ cooperative formed to secure the continuance of the ferry service and thus of SeaFrance employees. The essence of the arrangement was that the ferry service would be operated by GET or a subsidiary of GET and the ships would be operated and crewed by SCOP. The ferry service had been resumed on that basis. The authority, after an investigation of the impact of the transaction on competition on the cross-channel routes, prohibited GET from operating any ferry service from Dover using the passenger ships acquired from SeaFrance for a period of 10 years. Its jurisdiction to do that depended on whether GET’s acquisition of SeaFrance assets had created a relevant merger situation for the purposes of the Enterprise Act 2002. Under section 23(2)(a) of the Act what had to cease to be distinct in order to create a relevant merger situation were the two enterprises of SeaFrance and GET, ie their business “activities”. The reason for defining an “enterprise” by reference to its business activities was to show that the merger control regime depended on the merger of business activities as opposed to the merger of the entities which carried them on. It was no part of the purpose of the definition of “enterprise” to fix the time at which the relevant enterprise had actually to be performing those “activities”. The possession of relevant “activities” was simply a descriptive characteristic of the enterprise even if the activities were not actually being performed at the moment of the transaction, provided that there still existed the capacity to carry them on as part of the same business. If the assets of which control had been acquired were to be regarded as constituting an “enterprise” (i) they had to give the acquirer more than he might have acquired by going into the market and buying factors of production, and (ii) the extra had to be attributable to the fact that the assets had previously been employed in combination in the “activities” of the target enterprise. The longer the interval between a target enterprise’s cessation of trading and the acquisition of control of its assets, the less likely it would be that the criterion would be satisfied. Ultimately the question turned on whether there was economic continuity. Although GET and SCOP had not acquired the ferry business as a going concern, they hsd acquired much of the benefit of doing so. The question was not whether the dismissal of the employees had severed the connection between SeaFrance and its employees, but whether it had severed their connection with a business which could be acquired and operated by someone else. The connection had not been severed by the court-ordered redundancies on the express basis, required by French law, that a plan would be prepared within 15 days to safeguard their future employment. The plan which had emerged had provided a significant financial inducement for the acquirer of the ships to re-employ their former crews and shore staff to operate them in the same service as before. The authority regarded that as a significant pointer to the economic continuity of the business. The authority had been right to do so but it was enough for the present purposes to say that it was a conclusion which it had been entitled to reach.

 

Appearances

Marie Demetriou QC, Ben Rayment and Oliver Jones (instructed by the Head of Legal Department, Competition and Markets Authority) for the authority.

Kelyn Bacon QC and Ben Woolgar (instructed by Treasury Solicitor) as advocates to the court.

Richard Gordon QC and Gerard Rothschild (instructed by .Pinsent Masons LLP) for the intervener.
Reported by: Shirani Herbert, Barrister