THE MASTER OF THE ROLLS: This appeal arises in the context of a mega-merger dispute between the Argyll Group of Companies and Guinness, they being rival suitors for the hand (and commercial activities) of the Distillers Company. The bidding was opened by Argyll in December 1985 and Guinness made its bid in January 1986. Argyll countered with an increased offer on 6th February and no doubt the shareholders of Distillers had high hopes of further, and better, overtures from Guinness. Instead, on 13th February, the Secretary of State for Trade and Industry referred the Guinness proposal to the Monopolies & Mergers Commission for inquiry and report, thus apparently taking Guinness out of the race for some months.
The disablement of the rival suitor cannot but have been a source of quiet satisfaction to the Argyll Group, but it was short-lived, for one week later the Chairman of the Commission successfully sought the consent of the Secretary of State to the laying aside of the reference upon the ground that "the proposal to make arrangements such as were mentioned in the reference had been abandoned". Guinness then submitted a revised bid.
Argyll sought judicial review on 21st February. Leave to move was granted promptly, and Macpherson J. refused the substantive application on 6th March. Argyll appealed and the hearing began on 10th March. Let no one say that the courts cannot act quickly, if there is a proven need for such expedition.
There are four issues:
(a) Did the Chairman of the Commission correctly direct himself in law when he concluded that "the proposal to make arrangements such as are mentioned in the reference" had been abandoned within the meaning of that phrase in section 75(5) of the Fair Trading Act, 1973 ("the Act")?
(b) Did the Chairman have power to act alone on behalf of the Commission?
(c) Had Argyll a sufficient interest in the matter to which the application related within the meaning of Rules of the Supreme Court Order 53 rule 3(7)?
(d) Judicial review being a discretionary remedy, how should that discretion be exercised?
The Abandonment Issue. For the purposes of considering this issue, it is necessary to revert to the facts in rather greater detail.
The first Argyll offer, announced on 2nd December 1985, was for the whole of the issued share capital of Distillers, not already owned by Argyll, on terms said to be equivalent to 513p per share, thus valuing Distillers at £1,864 million.
The first Guinness offer, announced on 20th January 1986, was also for the whole of the issued share capital of Distillers on terras said to be equivalent to 625p per share, thus valuing Distillers at £2,270 million.
The second Argyll offer, announced on 6th February 1986, was, so far as is material, the same as its first offer, save that the revised terms were said to be equivalent to 645p per share, thus valuing Distillers at £2,343 million.
On 13th February 1986 the Secretary of State for Trade and Industry exercised his powers under sections 69(2) and 75 of the Act and made a reference to the Monopolies & Mergers Commission. Although this was, and had to be, expressed as the action of the Secretary of State, he felt it right for personal and family reasons to disqualify himself from taking any part in the matters with which we are concerned and all decisions were made by or with the authority of the Minister of State, Mr. Geoffrey Pattie, M.P. The full terms of the reference were as follows:
"Whereas it appears to the Secretary of State that it is or may be the fact that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a merger situation qualifying for investigation as defined in section 64(8) of the Fair Trading Act 1973 ('the Act'), in that:
(a) enterprises carried on by or under the control of The Distillers Company PLC (a body corporate incorporated in the United Kingdom) will cease to be distinct from enterprises carried on by or under the control of Guinness PLC; and
(b) the value of assets which will be taken over exceeds £30 million.
"Now, therefore, the Secretary of State in exercise of his powers under sections 69(2) and 75 of the Act hereby refers the matter to the Monopolies and Mergers Commission for investigation and report within a period of six months beginning with the date of this reference.
"In relation to the question whether a merger situation qualifying for investigation will be created if the arrangements herein referred to are carried into effect the Commission shall exclude from consideration section 64.(1) (a) of the Act."
The Commission consists of 1 whole time member, who is the Chairman, and 31 part time members. The present Chairman, who took office in November 1975, Sir Godfray Le Quesne, Q.C. It has a full time secretary and supporting staff. As might be expected, there is a routine procedure for dealing with merger references. The Act (Schedule 3, paragraph 10) empowers the Chairman to select a group of not less than 5 members to perform the functions of the Commission in relation to any investigation under the Act. The invariable practice is for this power to be exercised. As finding out which members are able and willing to serve as part of the group takes some time, the practice is also for the Chairman meanwhile to write to the companies involved in the merger informing them of the Commission's procedures and asking them to provide extensive information by a given date. The Chairman wrote accordingly in this case, but the process of selecting the group to undertake the investigation was overtaken by events and was never completed.
Under the terms of the City Take-Over Code an offer, such as that made by Guinness, has to be conditional upon there being no reference to the Commission and, if such a reference is made, it lapses. Furthermore, no new offer can be made during the pendency of the reference, which can last up to six months. In these circumstances, their offer having lapsed, it appears that Guinness entered into discussions with the Take-Over Panel to see whether a new offer could be made and that this was approved by the Panel, subject to the extant reference being first laid aside pursuant to section 75(5) of the Act. I will return to the terms of the subsection hereafter.
On the morning of 17th February 1986, representatives of Guinness met the Chairman at their request and indicated what was in their minds in general terms. The Chairman explained the provisions of section 75(5) and that, before these powers could be exercised, it would have to appear to the Commission that "the proposal to make arrangements such as are mentioned in the reference has been abandoned". For that purpose he would need to know the nature of any proposal to make different arrangements to bid for Distillers. A further meeting took place on 18th February. On 19th February the Chairman had a telephone conversation and two meetings with representatives of Guinness during which he was given further information which was later confirmed in writing.
Some of the written matter has not be disclosed in open court because of its confidential nature in terms of commercial sensitivity, but we have seen it during a sitting in camera. Mr. Allan Heyman, Q.C., appearing for Argyll, sought to raise an issue not raised before the learned judge of whether it was "Wednesbury unreasonable" for the Chairman to conclude on the information given to him that the proposal to make arrangements such as are mentioned in the reference had been abandoned. This issue was quite distinct from the issue of whether the Chairman had misconstrued section 75(5) and we refused to allow it to be raised. Had it been raised, the Chairman might well have wished to place much fuller information before the court as to what precisely he was told.
That issue having been exlcuded, and it therefore being accepted that if the Chairman's and the Commission's construction of section 75(5) is correct, but not otherwise, it did appear to the Chairman that the conditions required by the subsection were met, we are able to treat the terms of the subsequent offer announced by Guinness as representing the information available to the Chairman.
On the evening of 19th February the Chairman was satisfied that "the proposal to make arrangements such as had been mentioned in the reference had been abandoned" and that, subject to the consent of the Secretary of State, it would be appropriate that the reference be laid aside. He so informed the Secretary of State in writing. After a telephone conversation with a Parliamentary Under Secretary, who sought clarification of one part of that letter, the Chairman wrote a further letter again expressing his satisfaction that the terms of the subsection were met. Later still on the same day, the Secretary of State gave his consent to the reference being laid aside and this was announced to the public.
On the following morning, 20th February, Guinness and Distillers jointly announced Guinness' revised bid for Distillers. This, like the previous offer, contemplated the acquisition by Guinness of all the shares in Distillers but, unlike the previous offer, involved an undertaking that if, and at the moment when, the offer became unconditional in all respects, Guinness and Distillers would simultaneously divest themselves of a group of Scotch whisky brands, part presently the property of Guinness and part the property of Distillers, which would otherwise have belonged to the combined group upon and after the merger. The effect of this divestment would be to reduce the combined group's United Kingdom market share in whisky to about 25 per cent.
In essence Argyll's submission is that at the time of the reference Guinness proposed that they should take over the whole share capital of Distillers and that this has always remained, and still is, the position. Whether in the form originally proposed, or in that now put forward, there were at all times "arrangements such as were mentioned in the reference" within the meaning of section 75(5). Accordingly there was no possible basis for contending that at any time this proposal had been abandoned. Put in another way, both the first Guinness offer and the revised offer would, if implemented, have created merger situations. The proposal to create such a situation had never been abandoned. The second bid was merely a variation on the theme of the first.
In order to evaluate the validity of this submission, it is necessary to look in some detail at the scheme of the Act. Part V is concerned with mergers generally. Sections 57 to 62 can be ignored as they relate to newspaper mergers. Sections 63 to 74 relate to actual mergers, as contrasted with proposed, contemplated or intended mergers. Section 75 brings the latter within the scope of this part of the Act by modifying and applying the sections applicable to actual mergers. Sections 76 and 77 deal with supplementary matters.
It is important to distinguish between the powers of the Secretary of State to make a merger reference and the duty of the Commission to investigate and report on such a reference. They are quite different and I will deal with them separately.
The Secretary of State may make a merger reference "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) [pre-condition as to market share] or (b) the value of the assets taken over exceeds [£30 million]." (Section 64(1)).
This is described in the Act as a "merger situation qualifying for investigation" (section 64(8)). The Secretary of State may also make a merger reference "where it appears to him that it is or may be a fact that arrangements are in progress or contemplation which, if carried into effect, will result in the creation of a merger situation qualifying for investigation" (section 75(1)).
In simpler language, the Secretary of State can make a merger reference to the Commission if he knows or suspects that a merger qualifying for investigation has been created (section 64) or that arrangements for such a merger are in progress or contemplation (section 75). But the all important fact is that he need know nothing of the details and indeed his suspicions may later prove to be unfounded.
The position of the Commission is quite different. They are concerned not with suspicion, but with an actual situation whether that situation be one of a completed merger or of one which is in progress or contemplation.
In relation to a merger which appears to the Secretary of State to have been effected, the Commission's principal duties are to be found in section 69(1). Subject to any limitations imposed under the remaining subsections of that section, they must determine first whether the particular merger is "a merger situation qualifying for investigation" and, if it is, "whether the creation of that situation operates, or may be expected to operate, against the public interest". Further guidance on the Commission's approach to the public interest is contained in section 84, but that is not material for present purposes.
In relation to a merger which appears to the Secretary of State to be in the course of preparation ("arrangements are in progress or in contemplation"), the Commission's principal duties are to be found in section 75(2) read with section 69, as modified by section 75(4).
Section 75(2) is in the following terms:
"Subject to the following provisions of this section, on a merger reference under this section the Commission shall proceed in relation to the prospective and (if events so require) the actual results of the arrangements proposed or made as, in accordance with the preceding provisions of this Part of this Act, they could proceed if the arrangements in question had actually been made, and the results in question had followed immediately before the date of the reference under this section."
With hindsight it might have been preferable to have drafted a new subsection to deal comprehensively with anticipated mergers, but instead what has been done is to deem an anticipated merger to have been completed at the date of the reference. However, it is important to notice that this is done for jurisdictional purposes only —
"The Commission shall proceed ... as .... they could proceed if the arrangements in question had actually been made and the results in question had followed immediately before the date of the reference ....". For all other purposes sections 66, 67, 69 and 71 to 74 are modified to comprehend an anticipated as well as an actual merger, thus avoiding any problem if what had appeared to be an anticipated merger turned out to have been a completed merger. I stress the limited jurisdictional purpose of section 75(2), because this subsection does not require the Commission to consider the effect on the public interest on the basis that a contemplated merger will take effect or has taken effect on some hypothetical date i.e. that of the reference.
I now come to the crucial section 75(5) which is in these terms: "If, in the course of their investigations on a merger reference under this section, it appears to the Commission that the proposal to make arrangements such as are mentioned in the reference has been abandoned, the Commission — (a) shall, if the Secretary of State consents, lay the reference aside, but (b) shall in that case furnish to the Secretary of State such information as he may require as to the results until then of the investigations."
For Argyll it is submitted that this means that each and every proposal to make arrangements of the genus ("such as") mentioned in the reference has been abandoned. This genus is a merger of enterprises carried on by Distillers and Guinness respectively. If this is the correct construction, I accept that the Chairman was plainly wrong to conclude that there had been any abandonment, because the original proposal involving a merger of all the activities of the two companies was immediately succeeded by a new proposal involving a merger of most of their activities.
But is this the true construction of the subsection? I do not think that it is. The reference is not, and cannot be, of arrangements which are not then proposed. "The matter" which is referred for investigation and report are the arrangements which appear to the Secretary of State to be in progress. Since he may not know precisely what the arrangements are, the reference must be in descriptive rather than specific terms, but it is nevertheless a reference of such arrangements falling within the description as are then in fact in progress or in contemplation.
The use of the phrase "it .... may be the fact" only reflects the possibility that the Secretary of State may be wrong. If he is wrong, the Commission simply reports that there were no such arrangements in progress or contemplation at the date of the reference. If he is right, the Commission reports on those arrangements then proposed and answers the question whether, if those arrangements are carried into effect, a merger situation would be created and, if so, what would be the effect upon the public interest (section 69 as modified by section 75(4)).
Argyll retort that if this is correct a bidder could keep the Director General of Fair Trading who advises the Secretary of State, and the Secretary of State himself in permanent session by continually abandoning proposals and substituting new proposals which would themselves have to be considered and referred. Furthermore Argyll submits that, on the facts, all that happened was that Guinness maintained its original proposal which it modified only to the extent necessary to avoid the exercise by the Secretary of State of his powers under Schedule 8 to require divestment of certain activities.
I do not accept Argyll's view. So far as the practicalities are concerned, no doubt it is true that in the course of a reference those concerned become aware of the Commission's thinking and consider, and may well discuss with the commission, what undertakings can be given subject to which the Commission might be prepared to report that the public interest was not affected. On the other hand, the bidder may instead "go back to the drawing board" and start afresh and he may do so at a very late stage in the reference. If Argyll are right, the Commission would, as part of the original reference, have to consider and report on the new proposals and there is every likelihood that it could not do so within the time limits imposed by section 70 (six months with a possible extension of a further three months). If Argyll are wrong, any truly new proposal could be the subject of a separate reference with its own time limit.
Where it is said by a prospective bidder that proposed or contemplated arrangements have been "abandoned" and new arrangements are proposed or contemplated, it will always be a question of fact and degree whether this is correct or whether the so-called "new arrangements" are merely an amended form of the "old arrangements". This is supremely a matter for the Commission.
However, in defence of the conclusion which they reached on this occasion, it must be pointed out that the concept of a merger under the Act is not related to the merging of corporations, but to the merging of enterprises and "enterprises" means "activities, or part of the activities, of a business" (sections 63(2) and 64(1)). They, therefore, had to ask themselves whether the new proposal, which excluded specified "whisky activities" from the merger and which, in that form, admittedly was neither in progress nor in contemplation at the time of the reference, was sufficiently different from the original proposal for a comprehensive merger of all the activities of Guinness and Distillers for it truly to be said that the original proposal, i.e. the arrangements in progress or contemplation at the time of the reference, had been abandoned and a new proposal had come into existence subsequently.
For these reasons, I do not consider that the Chairman misdirected himself in law on the abandonment issue.
For the sake of completeness, I should mention that just as it is not for us to review the Chairman's factual conclusion that the merger proposal, the subject matter of the reference, had been abandoned, that being a matter of fact and degree for him (subject to the issue as to his powers as Chairman), so it is not for the Secretary of State to review his conclusion. The Secretary of State should accept the Chairman's finding of fact and then exercise his own discretion to consent, or to refrain from consenting, to the reference being laid aside and, if he consents, to decide what, if any, information he requires as to the results until then of the investigations.
The Chairman's Powers.
Paragraph 10(1) of the Third Schedule to the Act provides: "If the chairman of the Commission so directs — (a) the functions of the Commission in relation to any investigation under this Act, in so far as those functions have not been performed before the direction is given, or (b) the functions of the Commission in relation to the making of a report required of them under Part VI of this Act, shall be performed through a group of not less than five regular members of the Commission selected by the chairman of the Commission."
As I have already mentioned, merger references are not in practice conducted by the Commission as a whole, but by smaller groups of members formed on the Chairman's direction under this paragraph and consisting of members selected by him. This process of selection takes some little time and, meanwhile, the Chairman sets the investigation in progress by writing to all those concerned requesting information. It has rightly been accepted that, although there is no express statutory authority for the Chairman to do so, this is an administrative or ministerial activity, the performance of which either by the Secretary or by the Chairman on behalf of the Commission is clearly within the intendment of Parliament.
It is also accepted by the Chairman and by the Commission that, once the Chairman has given the necessary direction and a group has been formed, it is for that group and not for either the Commission as a whole or the Chairman as an individual, to conduct the reference and, if the issue arises, to decide whether there has been an abandonment within section 75(5).
However, most abandonments take place very soon after the reference is made by the Secretary of State and before it has been possible to form a group. What should happen then? On the seven occasions upon which this has happened since 1977, the Chairman has taken the decision on behalf of the Commission. From a practical point of view, this has much to commend it. Time is money in a very real and immediate sense in the financial markets of the world. Hence the speed with which this matter has been dealt with in the courts. If a merger reference is to be laid aside, it is of enormous importance not only to the companies concerned, but also to their shareholders actual and prospective, that this be decided and made known at the earliest possible opportunity. Where, therefore, the fact of abandonment was clear beyond argument, no one but the most dedicated purist would object to the Chairman taking this action. In all seven cases the fact of abandonment was quite clear and no one did object. However, the present case is different in both respects. The fact of abandonment is open to argument, albeit not in this court, and Argyll has objected.
The problem of an individual acting on behalf of a corporation is not new, particularly in the context of local authorities — see Provident Mutual v. Derby County Council (1981) 1 W.L.R 173, and the cases there cited, and The Queen v. Secretary of State for the Environment, ex parte Hillingdon (1986) 1 W.L.R. 192, distinguishing The Queen v. Brent Health Authority, ex parte Francis (1985) Q.B. 869 and the cases there cited. In each case the court has sought to divine the intentions of Parliament, taking account of the express terms of the relevant statutes and the practical situations which Parliament must be taken to have foreseen.
Accordingly I look to the terms of the Act. Section 81(2) empowers the Commission, which would include a group of members formed pursuant to the Chairman's direction, to determine their own procedure "for carrying out any investigation on a reference under this Act", subject to any directions from the Secretary of State given pursuant to section 81(3). In fact no such directions have been given. No group had been formed when this, or any of the other proposals the subject matter of the seven references, were held by the Chairman to have been abandoned and the Commission has never in terms determined that the Chairman should act on its behalf in these circumstances. The most that can be said is that the members must have become aware of the practice and none has objected. Furthermore, if this awareness and silence is to be relied upon, it must be on the basis that this is a procedure for "carrying out any investigation on a reference", but in truth the investigation intended by the reference had not been begun and the Chairman's investigation was to see whether there was anything left to investigate.
The only other express provision which is relied upon is paragraph 10 of the Third Schedule (supra) and the words "in so far as those functions have not been performed before the direction is given". However, this would be a very oblique way of authorising someone other than the Commission to perform its functions and the words are amply explicable by reference to a situation in which the Commission as a whole begins an investigation, which later is carried on by a group formed on the Chairman's direction.
The implication of a power for the Chairman to act alone in the interregnum before a group is formed is made slightly more difficult by section 85(1), which expressly empowers any member of the Commission or its Secretary to issue witness summonses, although it is quite true that this could be regarded as a special situation, being akin to an administrative or ministerial act, but one which need express authority because disobedience to the summons has penal consequences. This may, perhaps, suggest that if the Chairman was expected to act as he did, there would have been a similar provision in the Act.
I am reluctantly driven to the conclusion that, whilst I think that the Commission must be taken to have tacitly-accepted and approved this practice by the Chairman as being the only sensible and practical way of dealing with abandonments with sufficient promptitude at a stage when the Commission has not yet in any real sense entered upon the reference, it was not within its power to do so and the Chairman cannot derive any authority independently from the Act. Parliament just does not seem to have contemplated this problem. Happily the Secretary of State can remedy the deficiency for the future, if he thinks fit so to do, because section 24(1) of the Competition Act 1980, empowers him to make such modifications of Part II of the Third Schedule to the Act "as appear to him to be appropriate for improving the performance by the Commission of their functions".
Argyll's Interest.
Rules of the Supreme Court Order 53 rule 3(7) provides that "The Court shall not grant leave, unless it considers that the applicant has sufficient interest in the matter to which the application relates." In terms this sub-rule applies only to the stage at which level is granted or refused. However, the House of Lords in The Queen v. Inland Revenue Commissions, ex parte National Federation of Self-Employed and Small Businesses Ltd. (1982) AC 617, has introduced a two stage test (see per Lord Wilberforce at page 63)C, Lord Diplock at page 642E and Lord Fraser at page 645E) .
The first stage test, which is applied upon the application for leave, will lead to a refusal if the applicant has no interest whatsoever and is, in truth, no more than a meddlesome busybody. If, however, the application appears to be otherwise arguable and there is no other discretionary bar, such as dilatoriness on the part of the applicant, the applicant may expect to get leave to apply, leaving the test of interest or standing to be reapplied as a matter of discretion on the hearing of the substantive application. At this second stage, the strength of the applicant's interest is one of the factors to be weighed in the balance. This is discussed in greater detail in the fifth Edition of Professor Wade's classic work on Administrative Law at pages 587 - 591.
In the instant case we are not concerned with the first stage test, since there can be no appeal from the grant of leave to apply for judicial review. In any event Argyll clearly had a sufficient interest to apply for and be granted leave. Our concern is with the second stage. Argyll are minority shareholders in Distillers and they aspire to become sole, or at least majority, shareholders. Their interest may not represent a pure and burning passion to see that public law is rightly administered, but that could be said of most applicants for judicial review. Indeed, if it were the case that that was their only real interest, they would risk being branded as high-minded busy bodies, which they are not either adjectivally or substantively.
I therefore adjourn this aspect for further consideration as part of the issue of discretion.
Discretion.
The learned judge accepted that the Chairman derives authority to act as he did from paragraph 10 of the Third Schedule to the Act read with section 75(5). He did not, therefore, have to consider the issue of discretion. As I respectfully disagree with the learned judge on this aspect, I do not, therefore, have to consider how discretion should be exercised.
We are sitting as a public law court concerned to review an administrative decision, albeit one which has to be reached by the application of judicial or quasi-judicial principles. We have to approach our duties with a proper awareness of the needs of public administration. I cannot catalogue them all, but, in the present context, would draw attention to a few which are relevant.
Good public administration is concerned with substance rather than form. Difficult although the decision upon the fact of abandonment may or may not have been, I have little doubt that the Commission, or a group of members charged with the conduct of the reference, would have reached and would now reach the same conclusion as did their experienced Chairman.
Good public administration is concerned with speed of decision, particularly in the financial field. The decision to lay aside the reference was reached on 20th February 1986. If relief is granted, it must be some days before a new decision is reached.
Good public administration requires a proper consideration of the public interest. In this context, the Secretary of State is the guardian of the public interest. He consented to the reference being laid aside, although he need not have done so if he considered it to be in the public interest that the original proposals be further investigated. He could have made a further reference of the new proposals, if such they be, but has not done so.
Good public administration requires a proper consideration of the legitimate interests of individual citizens, however rich and powerful they may be and whether they are natural or juridical persons. But in judging the relevance of an interest, however legitimate, regard has to be had to the purpose of the administrative process concerned. Argyll has a strong and legitimate interest in putting Guinness in baulk, but this is not the purpose of the administrative process under the Fair Trading Act 1973. To that extent their interest is not therefore of any great, or possibly any, weight.
Lastly, good public administration requires decisiveness and finality, unless there are compelling reasons to the contrary The financial public has been entitled to rely upon the finality of the announced decision to set aside the reference and upon the consequence that, subject to any further reference, Guinness were back in the ring, from 20th February until at least 25th February when leave to apply for judicial review was granted, and possibly longer in the light of the learned judge's decision. This is a very long time in terms of a volatile market and account must be taken of the probability that deals have been done in reliance upon the validity of the decisions now impugned.
Taking account of all these factors, I do not consider that this is a case in which judicial review should be granted. Accordingly, I would dismiss the appeal.
LORD JUSTICE DILLON: The crucial issue on this appeal turns on the true meaning of the phrase "if .... it appears to the Commission that the proposal to make arrangements such as are mentioned in the reference has been abandoned", in section 75(5) of the Fair Trading Act 1973.
At a hasty reading it might be thought that "the proposal" was the proposed bid by Guinness for the share capital of Distillers, the Press announcement of which, on 20th January 1986, triggered the reference by the Secretary of State under section 75(1) of the Act on 13th February 1986. All parties are agreed, however, that the proposed bid is not to be equated with "the proposal"; otherwise there would be an abandonment of "the proposal" each time in a contested takeover a bidder made a new and improved offer which superseded his original offer. The Act is concerned with "arrangements" and not with price. Moreover, section 75(5) refers to "arrangements " mentioned in the reference, and the reference does not mention the Press release or the particular offer announced by the Press release. The Press release was merely evidence of the arrangements.
The scheme of the Act is to deal in sections 64 to 74 with merger references, where the merger has been carried out. The attention of the Act is directed at "enterprises" rather than specifically at companies, and the word "enterprise" is defined in section 63(2) as meaning the activities, or part of the activities, of a business.
Section 64(1) of the Act provides that a merger reference may be made where it appears to the Secretary of state that it is or may be the fact that two or more enterprises have ceased to be distinct enterprises, and that one or other of the two conditions set out in paragraphs (a) and (b) of section 64(1) is satisfied. Section 65 provides that any two enterprises shall be regarded as ceasing to be distinct enterprises if they are brought under common ownership or common control, and section 64(8) declares that the fact that two or more enterprises have ceased to be distinct enterprises in the circumstances described in subsection (1) of section 64 (including in those circumstances the result specified in paragraph (a) or fulfilment of the condition specified in paragraph (b) of that subsection)shall be regarded as creating a merger situation qualifying for investigation.
Where a merger reference has been made the Commission is required under section 69(1) to investigate and report on two questions viz: (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.
There is no power in the Act to lay aside a merger reference under section 64(1). There may, however, in the framing of the reference be certain limitations on its extent, provided for by section 69. One of those limitations is relevant to the present case in that by the reference in the present case the Commission was required to exclude from consideration the condition in paragraph (a) of subsection (1) of section 64.
This is normal practice. The effect was that the Commission only had to consider the condition in paragraph (b), as amended, viz. whether the value of the assets taken over exceeds £30 million.
Against that background, section 75 of the Act deals with the situation where the merger has not yet been completed. Subsection (1 of section 75 provides that a merger reference may be made to the Commission by the Secretary of State where it appears to him that it is or may be the fact that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a merger situation qualifying for investigation.
That wording of subsection (1) of section 75 is taken into the reference in the present case of 13th February 1986.
The reference begins: "Whereas it appears to the Secretary of State that it is or may be the fact that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a merger situation qualifying for investigation as defined in section 64(8) of .... the Act .... in that (a) enterprises carried on by or under the control of the Distillers Company plc ... will cease to be distinct from enterprises carried on by or under the control of Guinness plc and (b) the value of assets which will be taken over exceeds £30 million."
The words "arrangements .... mentioned in the reference" in subsection (5) of section 75 must pick up this wording in the preamble to the reference, and must thus mean, in some sense, arrangements which if carried into effect will result in the creation of a merger situation qualifying for investigation because of the two factors (a) and (b) set out in the reference. The words "the proposal" in subsection (5) of section 75 must, in this context, refer not to any promulgation of such arrangements or to any particular offer to make such arrangements, but to the condition, which is largely a state of mind, of the persons concerned in having such arrangements in contemplation or in progress.
The key question on this appeal is, therefore, a very narrow one, viz. does the phrase in subsection (5) of section 75 "to make arrangements such as are mentioned in the reference" mean the same as "to make the arrangements mentioned in the reference" or is it wider?
The arrangements mentioned in the reference can only mean the arrangements which were in progress or in contemplation at the date of the reference and which, if carried into effect, would result in the creation of a merger situation qualifying for investigation because of the two factors (a) and (b) set out in the reference.
If therefore that construction is correct, there is evidence to support the opinion of the Commission, by its Chairman, that those arrangements, and consequently any proposal to make them, had been abandoned.
The wider construction of the phrase "to make arrangements such as are mentioned in the reference" would extend to any arrangements which if carried into effect would result in the creation of a merger situation, qualifying for investigation because of the factors (a) and (b) set out in the reference.
Guinness and Distillers have continuously contemplated making such arrangements since the time of the Press release of 20th January 1986; even under their revised proposals as explained to the Chairman of the Commission and now set out in the public offer document of 3rd March 1986, a merger situation qualifying for investigation will be created because of those two factors. Accordingly, if that wider construction of the phrase is correct, it could not be said that "the proposal" — being the condition of having such arrangements in contemplation — has been abandoned.
Either construction of the phrase "to make arrangements such as are mentioned in the reference" is a possible construction on the mere wording of subsection (15) of section 75. But that subsection has to be read in the context of section 75, and indeed Part V of the Act, as a whole, and assistance is, in my judgment, to be found in subsection (2) of section 75.
Subsection (2) is a deeming section. Its function is to enable the Commission to operate, in relation to a merger which has not yet been completed, the provisions of the Act in relation to mergers which have been carried out. In that way it is a bridge between section 75(1) and the earlier provisions of Part V, and in particular sections 64 and 69. To that end the Commission is required to proceed as if "the arrangements in question had actually been made and the results in question had followed immediately before the date of the reference" under section 75. The "arrangements in question", which are also referred to in subsection (2) as "the arrangements proposed or made" must be the arrangements referred to in subsection (1), viz. the arrangements which were in progress or in contemplation at the time of the reference under section 75 and which, if carried into effect, would result in the creation of a merger situation qualifying for investigation. The "results in question" are the prospective and, if events so require, actual results of those arrangements.
A reference under section 75 can only be conducted on the basis of the deeming required by subsection (2), and as a matter of construction of subsection (2) that deeming can only apply to the arrangements which were in progress or in contemplation at the date of the reference (subsection (1)). Only in relation to those arrangements can the Commission proceed, under subsection (2), on a merger reference under section 75.
If that is the correct construction of subsection (2), it must point to the narrower construction of the words "arrangements such as are mentioned in the reference" in subsection 95). If the reference cannot be laid aside under subsection (5), even though the arrangements originally contemplated have been abandoned, if there are fresh arrangements in contemplation which will still result in the creation, because of the same factors, of a merger situation qualifying for investigation, the Commission would be in a difficulty in proceeding with the reference because the fresh arrangements will be outside the deeming process in subsection (2).
If the "fresh" arrangements are merely colourably different from the arrangements which were in contemplation at the date of the reference, then obviously they will be treated as the same and there will have been no abandonment of the proposal to make the original arrangements. If the fresh arrangements are indeed different from the original arrangements which were in contemplation at the date of the reference — and whether they are indeed different will be a question of fact and degree for the judgment of the Commission -then the appropriate course would be for the reference to be laid aside by the Commission, with the consent of the Secretary of State, under section 75(5) and for the Secretary of State, if he thinks it appropriate, to make a fresh reference in respect of the fresh arrangements.
I do not see any practical difficulty in that. I shrink from the conclusion that the Commission is inexorably bound to proceed with a reference properly made under section 75(1) even though the arrangements in contemplation at the time of the reference have been abandoned and been superseded by other arrangements which the Secretary of State would be minded not to refer.
I agree, therefore, with the main argument of Mr. Mummery and Mr. Peter Scott, Q.C. for the respondents that a proposal to make arrangements can be held to have been abandoned within the meaning of section 75(5) if the arrangements originally in contemplation have been superseded by arrangements which are significantly different, even though these would also involve the creation of a merger situation qualifying for investigation.
At one stage, Mr. Mummery went so far as to submit that the test whether the later arrangements were significantly different from the original arrangements lay in whether the later arrangements would also create a monopoly situation within the meaning of section 6 of the Act or would equally be expected to operate against the public interest. I do not think it was necessary for Mr. Mummery to go so far. These are factors which are highly relevant if the Commission has to decide the question (b) in section 69(1) on a merger reference of if the Secretary of State has to consider whether to refer the later arrangements to the Commission under section 75(1) and they are factors which may therefore come into the thinking of the parties when they are formulating their fresh arrangements; but they are, at most, of only minor relevance on a question of abandonment under section 75(5).
For the foregoing reasons, I am against the appellants on the crucial issue on this appeal.
On the question whether the Chairman of the Commission had power to lay aside the reference with the consent of the Secretary of State but without the concurrence of any of the other members of the Commission, I can see force in the argument that in the interests of efficient administration in a sensitive field Parliament must have intended that the Chairman, as the one full time member of the Commission, should have power to take, on his own, any decision which was reasonably required to be taken as a matter of some urgency before a group could be appointed and meet.
But I do not find it necessary to reach a decision either way on the question of the Chairman's powers, since I have no doubt that even if the Chairman had no power to act on his own, it would not be appropriate for this Court, as a matter of discretion, to grant the appellants any relief by way of judicial review.
On the one hand there has been a publicly announced laying aside of the reference by the Commission with the consent of the Secretary of State. Such an announcement would normally be acted on by third parties without consideration of whether, as a matter of internal management, the correct procedures of the Commission were followed and Guinness has acted at considerable expense, and others may have acted, on this announced decision.
On the other hand, if the decision to lay aside the reference is now quashed by this court, it would be open to a properly appointed group of the Commission, with the consent of the Secretary of State, to make a fresh decision to lay aside the reference on the same grounds; if a group were minded to do that, considerable problems of timing could arise, with possible serious detriment to shareholders in Distillers, in relating the appointment and decision of the group to the time scales of the various bids for Distillers shares.
Finally on the question of locus standi, I am of the view that Argyll Group had a sufficient interest to apply for judicial review, it is unnecessary to elaborate this.
For the foregoing reasons, I, too, would dismiss this appeal.
LORD JUSTICE NEILL: I, too, agree that this appeal should be dismissed. I propose to state, in my own words, however, my views on the question of the construction of section 75(5) of the Fair Trading Act 1973 (the Act).
The construction of section 75(5) of the Act. We are concerned, in this appeal, with certain provisions in the Act which relate to merger references other than newspaper merger references.
A merger reference means, for present purposes, any reference to the Monopolies and Mergers Commission (the Commission) with respect to the creation, or possible creation, of a merger situation qualifying for investigation within the meaning of Part V of the Act: see section 5(1)(c), section 5(3), section 63(1) and section 137(2).
A merger situation qualifying for investigation within the meaning of Part V of the Act can, broadly speaking, be of one of two kinds:
(a) A situation where two or more enterprises cease to be distinct enterprises and, as a result, a possible monopoly situation is brought into existence or enhanced: section 64.(1) (a), section 64(8), or
(b) A situation where two or more enterprises cease to be distinct enterprises and, as a result, the value of the assets taken over exceeds £30,000,000: see section 64(1)(b), section 64(8), Merger References (Increase in Value of Assets) Order 1984.
It will be seen therefore that if two enterprises are merged and the assets taken over exceed £30,000,000, a merger situation qualifying for investigation can arise even though before the merger one enterprise did not previously supply goods of the same description as the other enterprise. Thus a merger situation qualifying for investigation may arise simply because of the size of the two enterprises.
It is to be noted that by section 63(2) of the Act "enterprise" means, in this context, "the activities, or part of the activities, of a business".
Merger references can be made under the Act where the merger has already taken place. Under section 75, however, a merger reference can also be made in anticipation of a merger. The present appeal is concerned with section 75. Section 75(1) is in these terms: "A merger reference may be made to the Commission by the Secretary of State where it appears to him that it is or may be the fact that arrangements are in progress or in contemplation which, if carried into effect, will result in the creation of a merger situation qualifying for investigation."
It will be seen that under section 75(1) the Secretary of State is entitled to make a merger reference even where the information at his disposal is imprecise. It is enough that it should appear to him that "it may be the fact that arrangements (of the kind specified) are in progress or in contemplation".
On the merger reference being made the Commission are under a duty to investigate and report. This duty is contained in section 69(1) of the Act which provides as follows: "Subject to the following provisions of this Part of this Act, on a merger reference the Commission shall investigate and report on the questions — (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".
In the case of a reference in anticipation of a merger, however, the merger situation will not have been created and accordingly specific provisions are contained in section75 to take account of this fact. Thus section 75(2) provides: "Subject to the following provisions of this section, on a merger reference under this section the Commission shall proceed in relation to the prospective and (if events so require) the actual results of the arrangements proposed or made as, in accordance with the preceding provisions of this Part of this Act, they could proceed if the arrangements in question had actually been made, and the results in question had followed immediately before the date of the reference under this section." And by section 75(4) it is provided that, in relation to a merger reference under section 75, section 69(1) is to be construed as modified by section 75(2).
It is to be noted that section 75(2) introduces the phrase "the arrangements proposed or made", and requires the Commission to proceed in relation to the prospective and actual results of these arrangements as they could proceed if the arrangements had actually been made and if the results of these arrangements had followed immediately before the date of the reference.
It follows therefore that, whereas the Secretary of State, when he orders the reference, may act on information from which it appears to him that certain arrangements may be in progress or in contemplation, the Commission for the purpose of their investigation have to consider arrangements which are in fact proposed or made and have to look at these arrangements on the hypothesis that the results of the arrangements had followed immediately before the date of the reference.
This contrast between the perhaps nebulous arrangements of which the Secretary of State may be aware when exercising his power under section 75(1) and the arrangements "proposed or made" which the Commission have to consider on their investigation was strongly stressed by counsel for the respondents.
Thus, it was submitted, it was the arrangements which were in fact proposed which were material when one came to consider section 75(5). The "arrangements" referred to in section 75(1) founded the jurisdiction of the Secretary of State to make the merger reference but on investigation they might prove to be quite different from the arrangements which were in fact proposed.
I can turn now to section 75(5) which is in these terms: "If, in the course of their investigations on a merger reference under this section, it appears to the Commission that the proposal to make arrangements such as are mentioned in the reference has been abandoned, the Commission — (a) shall, if the Secretary of State consents, lay the reference aside, but (b) shall in that case furnish to the Secretary of State such information as he may require as to the results until then of the investigations."
The arguments put before us on behalf of Argyll as to the meaning of section 75(5) were on these lines:
(l) The proposal to make arrangements such as are mentioned in the reference is abandoned if, but only if, it is no longer proposed to make arrangements such as are mentioned in the reference.
(2) The arrangements mentioned in the reference in this case were arrangements which, if carried into effect,
would result in a merger situation qualifying for investigation.
(3) The merger reference itself excluded consideration of section 64(1)(a) so that in order to decide in accordance with section 69(1) whether there was a merger situation
the Commission was only concerned with two matters:
(a) Whether enterprises carried on by or under the control of Distillers would cease to be distinct from enterprises carried on by or under the control of Guinness; and
(b) Whether the value of the assets which would be taken over would exceed £30,000,000.
(4) Under the proposal outlined to the Chairman on 18th and 19th February 1986 (whether described as a new proposal or a revised proposal) it was still proposed to make arrangements which, if carried into effect, would bring about a merger situation qualifying for investigation as contemplated by section 64(1)(b) of the Act.
Furthermore, the merger situation would be of precisely the same kind
as that mentioned in the merger reference.
(5) The proposal to make arrangements such as were mentioned in the reference dated 13th February 1986 was therefore not abandoned.
On behalf of the respondents, on the other hand, it was argued that it was necessary to look first at the arrangements proposed at the time of the reference. These arrangements were those set out in the offer of 20th January 1986. Moreover it was this proposal (which I shall call the original proposal) which was "the proposal" referred to in section 75(5).
The question whether this original proposal was abandoned was a matter for the judgment of the Commission and they could decide the matter by comparing any further proposal with the original proposal.
In the present case the activities of the two companies to be merged under the new proposal were "significantly different" from the activities which were to be merged under the original proposal.
The Commission, therefore, had power to lay the merger aside because it appeared to them that the original proposal had been abandoned. Moreover, it was important to have regard to the fact that the board of Guinness had said that they had decided to abandon the original proposal. Accordingly the Commission had properly construed section 75(5) and it was not to the point that the new proposal still contained an offer by Guinness to acquire all the issued share capital of Distillers and that the proposed merger would create a merger situation qualifying for investigation within section 64(1)(b). It was a different merger situation. Such, then, in outline were the arguments.
I, too, am of the opinion that the respondents are entitled to succeed on this issue. I would venture to express my reasons for this conclusion as follows:
(1) It is plain that "the arrangements" mentioned in a merger reference may be based on information obtained by the Director of Fair Trading in carrying out his duty under section76 of the Act or on press reports or on other information coming to the Secretary of State from various sources. The information about the arrangements may therefore be imprecise or even wholly inaccurate.
(2) Once the merger reference has been made the Commission have to start their investigation. It is at this stage that
the actual arrangements made or proposed can be ascertained. Moreover it is apparent from section 75(2) that these arrangements are the arrangements made or proposed at the date of the reference. It is this proposal to make arrangements which falls to be investigated under section 69(1) as modified by section 75(2).
(3) It is in the context of the contrasting provisions of section 75(1) and section 75(2) that one has to consider section 75(5)-
(4.) Looked at in the context of section 75(1) and section 75(2) the words "arrangements such as are contained in the reference" in section 75(5) seem to me to be intended to do no more than identify the class or genus of arrangements to which attention has to be directed.
They are not intended to specify particular arrangements, but are there to point to the area of investigation and, of course, to the parties to be investigated. "The proposal" in section 75(5) is the proposal under investigation in accordance with section 69(1) as modified by section 75(2).
(5) When considering the question of abandonment the Commission must examine the actual proposal which is the subject matter of the merger reference. The question to be answered
is whether that proposal has been abandoned or merely modified.
(6) The qualitative judgment as to whether a proposal has been abandoned or not is a matter for the Commission and they are entitled to have regard to the question whether the activities to be merged under some further or revised proposal are so markedly different from the activities to be merged under the original proposal that the original proposal is in the context of this legislation abandoned.
(7) I am unable to accept, having regard to the quite separate functions of the Secretary of State under section 75(1) and of the Commission under section 75(2), that the Commission are obliged to continue an investigation in circumstances where the arrangements proposed at the time of the merger reference have in the view of the Commission been revised to a significant and material degree.
The other issues. On the other issues which were argued before us I need only say this: (1) I agree that Argyll have sufficient interest to bring these proceedings. (2) I agree, for the reasons given by the Master of the Rolls, that the Chairman did not have power under section 75(5) to lay aside the reference. (3) Nevertheless, I am quite satisfied that the Court, in the exercise of its discretion, should not grant any relief to these applicants. The purpose of the legislation, the fact that the Secretary of State has and has had the power to refuse his consent to the laying aside or to make a further reference, and the fact that Guinness and other third parties have acted in reliance on the announcement of the laying aside of the reference, point inevitably to this conclusion.
(Appeal dismissed with costs. Leave to appeal to the House of Lords refused.)
