The Court of Appeal in the BAA case gives the Competition Commission a much-needed win on a vexed question
Both the Competition Commission and interested observers are likely to remember 2009 as a particularly difficult period for the CC. It was called an annus horribilis by some. By the end of that year, the CC had suffered three important defeats at the Competition Appeal Tribunal in remedies challenges related to the market investigation inquiries into groceries, payment protection insurance and airports. Whereas Tesco and Barclays Bank disputed the proportionality of remedies (and the CAT agreed with them and remitted key issues to the CC for reconsideration), the BAA challenge succeeded on an altogether different ground: the CAT accepted BAA's argument that a CC member, Professor Moizer, was afflicted by apparent bias.
Given that the Competition Commission prides itself (rightly so) on the considerable and varied expertise of its members, who are drawn from a variety of different backgrounds, it was unsurprising that the CC appealed the CAT's judgment to the Court of Appeal to challenge the CAT's views on the bias issue.
Appropriate relief
The question of appropriate relief arose after the CAT's judgment. The CAT was well aware that it had found against the CC only on procedural grounds (bias – and even then, only apparent bias, not actual bias) rather than on substantive grounds (BAA's challenge to the proportionality of the divestment remedy failed). The CAT's finding of apparent bias tainted the entire report which, in the CAT's words, had been prepared "at great effort and expense to all concerned". Therefore, rather than overturning the entire report, the CAT invited further submissions on the question of appropriate relief, in the hope that BAA and the CC could agree on a sensible way forward.
By the time that the CAT handed down its judgment on the question of relief and permission to appeal to the Court of Appeal at the end of February 2010, the parties had reached agreement on a number of key points. Among other things, they had agreed that sizeable parts of the final report could stand (such as those dealing with Heathrow's status as the only significant hub airport and distortions of competition caused by the planning regime and aspects of the regulatory regime, as well as government policy). Importantly, they had also agreed on which issues needed to be quashed in the final report and reconsidered by the CC, namely the findings that led to the imposition of the structural (divestment) remedy to deal with BAA's common ownership of various airports. Finally, bearing in mind that the CC had appealed the CAT's judgment to the Court of Appeal, BAA and the CC had agreed that the CC remittal should not occur until the Court of Appeal had decided on the merits of the appeal.
The CAT commended BAA and the CC for the pragmatic way in which they had approached the appropriate relief issue, and declined to follow the intervener Ryanair's request for more detailed directions on how the CC remittal should be run. Nevertheless, the CAT did not believe that BAA's appeal had a real prospect of success, and permission to appeal was denied. However, the CC's application to the Court of Appeal for leave to appeal was successful, and hence the Court of Appeal had the chance to consider the CAT's findings on apparent bias.
Court of Appeal's judgment
The Court of Appeal was asked by the CC to decide whether Professor Moizer's participation in the market investigation was in fact vitiated by apparent bias concerns. As BAA sought to demonstrate at length before the CAT, Professor Moizer had, for a significant period of time, advised the Greater Manchester pension fund, which is governed by the 10 local authorities in Greater Manchester. The crux of the apparent bias allegation made by BAA lay in the fact that these same local authorities also owned 100% of the shares in Manchester Airport Group, a key BAA competitor. Therefore, in BAA's opinion, and supported by the CAT's judgment, Professor Moizer was involved in determining whether BAA should be broken up on the one hand while, at the same time, advising a competing company that stood to benefit from such a possible BAA break-up imposed by the CC.
However, during the course of the appeal proceedings before the Court of Appeal, the CC strongly argued that the CAT's apparent bias findings were wrong. There appear to have been two key factors that motivated the CC in this regard: at the fundamental level, in order to maintain a system of using highly qualified members for the CC inquiry panels, the CC needed to reduce the scope for apparent bias findings as much as possible. Otherwise there would be a real danger that finding members unaffected by bias concerns for particular inquiries could become very burdensome indeed. At the more practical level, it is clear that the CC was also strongly of the view that it had good arguments on the facts to persuade the Court of Appeal that Professor Moizer was simply too loosely connected to Manchester Airport Group to support an apparent bias finding.
The Court of Appeal confirmed that the test for apparent bias is "whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the [decision-maker] was biased". The CAT had found that Professor Moizer was afflicted by apparent bias from October 2007 onwards. This was based on the CAT's view that, from that point onwards, the Manchester Airport Group had actively engaged with the CC in the context of the inquiry and that it was interested in acquiring any airports BAA may be required to sell. However, based on a detailed consideration of the underlying facts, the Court of Appeal concluded that, from October 2007 until the 2 December 2009, Professor Moizer's link with Manchester Airport Group and its local authority owners was too remote to give rise to real apparent bias concerns. This was primarily because Professor Moizer's key link was with the Greater Manchester pension fund, and not with the Manchester Airport Group.
However, it is important to appreciate that (contrary to a number of press reports around the time of the judgment) the Court of Appeal did not fully overturn the CAT's apparent bias finding. The Court of Appeal agreed with the CAT's finding that from 2 December 2008, when Professor Moizer became specifically aware that the Greater Manchester pension fund was considering an investment in Gatwick airport, there was apparent bias until Professor Moizer formally withdrew from the CC inquiry in March 2009. Therefore, the Court of Appeal had to reconsider the grounds that the CC had used to seek to persuade the CAT that the apparent bias finding should be nullified. The grounds can be summed up as follows: (1) the apparent bias did not make any difference to the final outcome; or (2) BAA had at least constructive knowledge of Professor Moizer's links and had therefore waived its right to challenge the CC's final report on bias grounds. The CAT had rejected all these grounds, and this was the basis on which the CAT had found against the CC.
Although the Court of Appeal agreed with the CAT's rejection of two of the CC's grounds, crucially (for the outcome of the entire case) the Court of Appeal agreed with one of the CC's grounds, namely that the apparent bias from 2 December 2008 to March 2009 had not led to a "contamination" of the final report. The Court of Appeal concluded that – as the provisional findings and a consultation on possible remedies (including the proposed divestment remedies) had already been reached before the apparent bias arose in December 2008 – the final decision would not have been considered by a fair-minded and informed observer to have been tainted by a real possibility of apparent bias. In other words, Professor Moizer's influence on the outcome in the last few months before he stepped aside were peripheral and not capable of giving rise to apparent bias concerns.
What next?
The Court of Appeal's judgment means that the CC's final report and remedies decision are reinstated, and BAA must therefore sell both Stansted and one of Edinburgh or Glasgow airports. BAA has expressed its disappointment at the Court of Appeal's ruling, and has announced its intention to appeal to the Supreme Court. The CC, on the other hand, is understandably pleased with the Court of Appeal's findings, but interestingly it has also been at pains to point out that it is fully aware it must tighten its procedures to minimise the risk of bias findings in future.
This awareness is no doubt also fuelled by the knowledge that, following the CAT's judgment, parties to CC inquiries immediately put pressure on the CC regarding bias issues. For example, the CC was forced to replace Dr Peter Davis as chairman of the CC's local bus market inquiry, following pressure by one of the parties under investigation regarding Dr Davis's role in the Preston Bus CC merger inquiry. Although the CC stated that it regarded the objections as lacking foundation, the CC opted to take the safest course by appointing a new chairperson (Diana Guy) to head this particular inquiry.
Within three days of the local bus market inquiry issues, the CC had also announced an independent review of its rules and practices concerning interests of its members. Although the independent panel has yet to report, the CC has noted that it intends to fine tune its procedure still further as a result of the panel's findings.
Current scope of apparent bias in CC inquiries
Care should be taken not to conclude that the Court of Appeal's judgment significantly reduces the risk of bias issues affecting members of the CC and any inquiries they work on. It must be remembered that the Court of Appeal partially upheld the CAT's apparent bias finding against Professor Moizer, and that the CC only succeeded on appeal because, on the particular facts of this case, the apparent bias test was not met. It is clear, however, as already vividly illustrated by the aggrieved party in the local bus market inquiry, that companies under investigation will seek to influence the make-up of the members panel if they can, and therefore the CC can be expected to continue to focus heavily on ensuring that bias issues do not unduly restrict its ability to appoint the best panel for each inquiry.
No doubt airline passengers will also welcome the Court of Appeal's decision, as one of the consequences (subject to a further Supreme Court appeal) will be that, during the course of the next 12 to 18 months, the three major London airports (Heathrow, Gatwick and Stansted) will be owned by separate entities, resulting in a more competitive market. This what the CC has been aiming to achieve from the outset.
If the appeal does reach the Supreme Court, it will be interesting to see which side it will come down on. However, regardless of the outcome, it is surely no bad thing that the CC increases its focus on ensuring that its administrative policies and procedures are beyond reproach.
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