UK: Apparent Bias

Last Updated: 2 March 2010
Article by Simon Holmes and Dr. Gordon Christian

The Competition Commission has a tough time over the BAA case

Just before Christmas, the Competition Commission found itself at the receiving end of the third Competition Appeal Tribunal judgment in the same year in which the CAT overturned or censured certain CC decisions. In both the groceries and the payment protection insurance judgments, in which Tesco (groceries) and Barclays Bank (payment protection insurance) had challenged certain aspects of the remedies packages, the CAT agreed with the claimants in relation to some of these aspects and required the CC to reconsider the relevant issues.

In the latest market investigation remedies challenge to come before the CAT, the CAT has accepted BAA Ltd's (BAA) challenge to the CC's findings in its BAA airports market investigation on the basis that one CC inquiry member was affected by "apparent bias".

This article sets out the factual background before analysing the key points to come out of the CAT's judgment.

Background: OFT investigation

There have been longstanding concerns that BAA's ownership of several airports in the south-east of England (Heathrow, Gatwick, Stansted and Southampton) and in Scotland (Glasgow, Edinburgh and Aberdeen) was bad for competition and had adverse effects on consumers. At the end of June 2006, the OFT launched a market study into UK airports, arguing that the decision to proceed to a market study reflected the importance of airports to consumers and businesses within the UK.

Background: CC market investigation

The result of the OFT's market study was that the OFT referred the market for the supply of airport services by BAA in the UK to the CC for a market investigation in March 2007. By the time the CC published its emerging thinking in April 2008, BAA's common ownership of the three main London airports (Heathrow, Gatwick and Stansted) as well as the two main Scottish airports (Edinburgh and Glasgow) had already been identified as a key feature of the market that gave rise to adverse effects on competition. At that time, the stage was already set for structural remedies as a possible outcome, and this was confirmed in the CC's final report published in March 2009.

In order to address the issues related to BAA's common ownership of London's Heathrow, Gatwick and Stansted airports, the CC required BAA to divest Gatwick and Stansted airports to separate purchasers within two years. In fact, following the CC's provisional findings, BAA had already announced its intention to sell Gatwick, and the sale to Global Infrastructure Partners was completed recently, following European Commission merger control approval. The Competition Commission also decided that BAA should sell either Edinburgh or Glasgow airport.

BAA's CAT challenge

On 18 May 2009, BAA filed with the CAT its appeal against the CC's final report and the divestment remedy. In this regard, BAA relied on two grounds. First, it alleged that the CC's report was flawed as one CC inquiry member was affected by apparent bias. Second, it challenged the divestment remedy on proportionality grounds, essentially similar to those which had been used successfully against the CC by Tesco and Barclays Bank in the groceries and payment protection insurance cases.

Apparent bias

The CC has a panel of members who are all highly experienced and well-regarded experts in their respective fields. The CC makes a selection from this panel and appoints a certain number (usually, between three and six) of such members to conduct and direct the inquiries that the CC is asked to undertake.

The BAA inquiry was led by a team of six CC members, including Professor Peter Moizer. It was Professor Moizer's participation in the market investigation that, in BAA's opinion, gave rise to apparent bias concerns. This was because 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 lay in the fact that these same local authorities also owned 100% of the shares in Manchester Airport Group, a key BAA competitor. In BAA's opinion, therefore, 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.

CC policy

Since July 2002, the CC has had a stringent policy in place to prevent conflicts of interest from arising, a copy of which can be found on the CC's website. The guidance requires members to disclose to the CC's chief executive any interests which may give rise to a conflict, and it goes on to say that such an interest may result in a member not being appointed for the purpose of a particular investigation. The guidance is also clear on why the conflicts policy is very important for the CC: "We are not only concerned with the possibility of one of our decisions being challenged in court on the grounds of conflict of interest, embarrassing as such a case would be to the Commission and the member involved. The [CC] must be seen to be above suspicion."

CC disclosure

So what did the CC disclose to BAA about Professor Moizer's (indirect) link to the Manchester Airport Group? At the start of the market investigation, the CC sent an email (the 2007 email) to BAA in which it noted that Professor Moizer had given strategic advice to the Greater Manchester Pension Fund on how to structure investments. The CC followed this up with a more formal letter (the 2007 letter), in which it reiterated its previous statement, and noted that Professor Moizer had no influence on (and did not even know) which investments the Greater Manchester Pension Fund in fact made. The CC did note, however, that the Greater Manchester Pension Fund investments may include some whose value could be affected by the outcome of the inquiry – a very indirect and vague reference to the link between the Greater Manchester Pension Fund and the Manchester Airport Group.

Professor Moizer's involvement

However, as counsel for BAA explained in detail to the CAT during the hearing, there had been a conflict issue concerning Professor Moizer and an airports investigation on a previous occasion. Every five years, the CC is involved in reviews concerning regulated airports, relating in particular to the maximum level of charges that the regulated airports can charge airlines and other airport users. In 2002, the CC was considering two quinquennial reviews in parallel, one related to Manchester Airport and the other related to London Heathrow, Gatwick and Stansted. Professor Moizer was a member of the Manchester Airport inquiry, but not of the other one. However, as there were certain common issues to the reviews, a joint meeting of both inquiry groups was suggested, and at that stage Professor Moizer notified the CC of the potential conflict and took no part in the joint meetings. In addition, several interested parties (but not BAA) were notified about Professor Moizer's link to the Greater Manchester Pension Fund and the Manchester Airport Group in a letter which was significantly more detailed than the 2007 email and letter to BAA referred to above.

Another key point that was relevant to the CAT's considerations on the bias point was that Manchester Airport Group had informed the CC at a hearing in October 2007 that it would be interested in acquiring BAA airports if a suitable opportunity arose.

Issues came to a head in January 2009, when Professor Moizer first became aware of the Greater Manchester Pension Fund's participation in a consortium interested in acquiring Gatwick (which BAA had put on the market after the CC's provisional findings). Given that a conflict of interest could no longer be ruled out, the CC took the decision that Professor Moizer should stand down, which he duly did – but only a matter of weeks before the CC's final report was published.

Legal test

According to the relevant legal test, the CAT had to decide whether a "fair-minded and reasonable" observer would conclude, on the facts of the case, that there was a real possibility that Professor Moizer was biased in favour of the Greater Manchester Pension Fund and/or Manchester Airport Group. "With the greatest reluctance" – and emphasising that the CAT considered this to be a case of apparent (rather than actual) bias – the CAT concluded that a fair-minded and reasonable observer would so conclude. At the same time, the CAT dismissed the CC's arguments (1) that BAA should have done further background checks on Professor Moizer after the CC's disclosure in 2007; (2) that BAA had waived its rights to allege bias as the 2002 disclosure was in the public domain and BAA had not acted on it; and (3) that even if Professor Moizer was affected by bias, he was only one of six members and could therefore not have had decisive influence on the results of the CC's inquiry.

The CAT's dilemma

As the CAT dismissed BAA's substantive arguments concerning the alleged lack of proportionality of the divestment remedy, the CAT found itself in difficult territory concerning the possible effects of its judgment. Unlike the groceries and payment protection insurance judgments, in which Tesco and Barclays Bank respectively succeeded with some of their substantive arguments (and it was therefore relatively straightforward to direct the CC to reconsider the relevant substantive issues), BAA had "only" succeeded on a procedural point. However, this risked the CAT having to overturn the entire report, and the CAT noted that it had been conscious throughout of the implications of this finding on a CC report prepared "at great effort and expense to all concerned". The CAT's judgment also left up in the air the ongoing airport disposal process concerning Stansted and Edinburgh or Glasgow. At BAA's suggestion during the hearing, the CAT has ordered that it will hear further arguments on the matter of appropriate relief unless BAA and the CC can agree a way forward.

At this point, it appears that talks between BAA and the CC are ongoing, and it will be interesting to see how long the CAT gives the parties before intervening to make a final decision on appropriate relief.

Conclusion

It is clear that as the severity of the CC's decisions increase – particularly in relation to outcomes in market investigations which have significant repercussions for both market participants and consumers generally – the CC's handling of all aspects of such cases must be beyond reproach. Justice must not only be done but be clearly seen to be done.

Furthermore, some commentators have gone as far as to label 2009 as an annus horribilis for the CC - a year in which it suffered three high-profile defeats at the CAT.

Against this background, the CC will no doubt be considering putting additional procedures in place to ensure that the significant benefits of its market investigations are not jeopardised by failings on the procedural side and are less vulnerable to challenge.

As always, such procedures will probably come at a price, with more complex procedures, greater pressures on time and, no doubt, ever longer reports.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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