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You are here: BAILII >> Databases >> United Kingdom Competition Appeals Tribunal >> National Grid Plc v The Gas and Electricity Markets Authority [2009] CAT 21 (30 June 2009) URL: http://www.bailii.org/uk/cases/CAT/2009/21.html Cite as: [2009] CAT 21, [2009] Comp AR 353 |
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Neutral citation [2009] CAT 21
IN THE COMPETITION
Case Number: 1099/1/2/08
APPEAL TRIBUNAL |
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Victoria House
Bloomsbury Place
30 June 2009
London WC1A 2EB
Before:
VIVIEN ROSE
(Chairman)
PROFESSOR PAUL
STONEMAN
DAVID
SUMMERS |
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Sitting as a Tribunal in England
and Wales BETWEEN:
NATIONAL GRID
PLC
Appellant
- v -
THE GAS AND ELECTRICITY MARKETS
AUTHORITY
Respondent
supported by
SIEMENS PLC
CAPITAL METERS LIMITED
METER FIT (NORTH WEST)
LIMITED
METER FIT (NORTH EAST)
LIMITED
Interveners |
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RULING ON PERMISSION TO APPEAL |
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1. National
Grid have requested permission to appeal from the judgment of the Tribunal
handed down on 29 April 2009 ([2009] CAT 14, “the Judgment”). An appeal
lies from the Judgment under section 49 of the Competition Act 1998 both
as to the decision of the Tribunal regarding the amount of a penalty
imposed under section 36 of that Act and on a point of law arising from
the Judgment. The Respondent and the Interveners oppose the grant of
permission and the parties were content for us to decide this matter
without an oral hearing.
2. According
to CPR rule 52.3(6) which applies in this case, permission may be granted
only if the Tribunal considers that the appeal would have a real prospect
of success or where there is some other compelling reason why the appeal
should be heard. We have in mind the comments of Buxton LJ in Napp
Pharmaceutical Holdings Limited v Director General of Fair Trading
[2002] EWCA Civ 796 as to the importance of isolating within the
criticised decision what is an issue of law, and what is merely a
determination, by a specialist Tribunal, of a matter of fact or judgement
(see paragraphs 15 to 17).
3. The
Tribunal’s conclusion is that none of the grounds of appeal proposed by
National Grid raises an issue which is sufficiently material to the
Tribunal’s findings to establish a real prospect of an appeal succeeding.
This is, at base, a reasonably straightforward case in which the Tribunal
reached the same conclusions on the substance as the Authority reached and
did so largely for the same reasons as were relied on by the Authority. We
do not consider that there is any real prospect of a higher court
upholding any of the grounds of appeal or varying the fine which we have
imposed. There is no other compelling reason for the matter being
considered by a higher court. We therefore unanimously dismiss National
Grid’s request. We consider below each of National Grid’s grounds of
appeal, as set out in its request dated 29 May 2009 (“the
Request”).
Ground 1: what is ‘normal’ competition?
4. National
Grid wish to revisit the debate over what the European Court of Justice
meant by the reference to “normal competition” in Case 85/76
Hoffmann-La Roche v |
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1 |
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Commission [1979] ECR 461:
see paragraphs 88 onwards of the Judgment. That debate was concluded by
the Tribunal noting in paragraph 93 that all the parties in the case
accept that some kind of payment protection arrangement was
“normal” in this market. It cannot be argued from this that all
kinds of payment protection arrangements must be regarded “normal” and
hence not abusive. The question for the Tribunal was whether the
arrangements in the Legacy MSA went too far. We do not see how the
reference to “normal” competition in Hoffmann-La Roche or the other
points raised by National Grid under Ground 1 assist in arriving at the
answer to that question. Once it is accepted, as it was for the purposes
of this case, that payment protection is normal, the Hoffmann-La Roche
judgment does not take one any further. In so far as National Grid
seek to reargue the point about the Legacy MSA being more attractive to
customers than other arrangements, the Tribunal has explained in the
Judgment why that argument was rejected as irrelevant.
Ground 2: the use of benchmarks
5. National Grid’s second ground
concerns the use of benchmarks by the Tribunal. As regards PPMs, they make
two points. First they say that the only comparison made for PPMs was the
average cost per meter of replacing 50 per cent more meters than envisaged
by the glidepath. National Grid argue that this cannot amount to
anti-competitive foreclosure unless there is an implicit comparison with a
situation where no early replacement charges apply. We disagree that there
is any such implicit comparison. We explained the exercise that the
Authority had undertaken, as described by Mr Keyworth, and we rejected the
specific criticisms of the exercise that National Grid put forward: see
paragraphs 101 onwards of the Judgment. The point that National Grid now
relies on was dealt with particularly in paragraphs 111 – 113. The
Tribunal is a specialist body with particular expertise in determining
whether the tests that a competition authority has devised and applied in
a given case were a good way of assessing the actual or potential economic
effect of the conduct in question. These issues are pre-eminently issues
for the judgement of a specialist tribunal. Having regard to the comments
of Baroness Hale in Secretary of State for the Home Department v AH
(Sudan) [2007] UKHL 49 (paragraph 30) concerning the approach of the
appellate courts to the decision of an “expert tribunal charged with
administering a complex area of law”, we do not consider that this ground
has any prospect of success. |
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6. National
Grid’s second point seems to be that the Legacy MSAs allow more free
replacement of PPMs than are allowed under the CMO contracts. Although
National Grid refer to this point having been raised in the 559th
paragraph of their Notice of Appeal, this is not a point that was made in
National Grid’s skeleton argument or during the course of submissions at
the hearing. It is not a point that the Tribunal was invited to consider
and it is not appropriate for National Grid to rely on it
now.
7. As regards
DCMs, National Grid renew their attack on the Authority’s counterfactual.
Again, there is no error of law identified here. We agree with the point
made by the Authority that much of National Grid’s argument is based on
the assumption that the Authority or the Tribunal must not only devise a
counterfactual against which to assess the alleged abusive conduct but
must ensure that the counterfactual is in effect at “the limits of
acceptable non-abusive behaviour”. There is no authority for the
proposition that a competition authority must identify what kinds of
alternative but similar conduct would be just on the right side of the
Article 82 infringement line and then compare the actual conduct with
that. Any such requirement would make Article 82 unworkable.
8. Finally on
this ground National Grid seek to reopen the discussion about their sale
counterfactual described in paragraphs 146 onwards of the Judgment. This
was an issue to which a great deal of written and oral evidence and
submission was devoted. In concluding that this counterfactual was
unhelpful, the Tribunal took into account the note entitled “Ownership
incentives under the Legacy MSA” handed up towards the end of the hearing,
the discussion of this issue in course of closing speeches and the
evidence of Mr Matthew. The fact that the Judgment does not expressly
refer to and rebut each of these elements does not mean that the Tribunal
“failed to address” them. We have, rather, borne in mind the comments of
the Court of Appeal in Argos Limited & Littlewoods Limited v Office
of Fair Trading [2006] EWCA (Civ) 1318 (paragraphs 5 and 6) that it is
not always necessary for the Tribunal to set out each party's submissions
in detail before explaining the reasons for deciding the case and that the
Tribunal should endeavour to express its findings of fact and its
reasoning in more succinct form. |
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3 |
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Ground 3: actual foreclosure and the reduction in business
of the CMOs
9. National
Grid object to the finding in paragraph 182 of the Judgment to the effect
that Siemens/CML could easily have accommodated significant additional
volumes of work by mid-2005. The factual issue being determined by the
Tribunal here was a very narrow one, concerning the reductions imposed by
British Gas in May 2006 from 100 per cent of what had been provided for in
their contract with CML to 85 per cent: see paragraph 181 of the Judgment.
National Grid argued that this prima facie reduction did not
actually have any real effect on CML’s business because teething problems
at the start of the contract meant that CML would have failed to achieve
the 100 per cent contract performance in any event. The Tribunal accepted
the evidence of Mr Lee that CML’s teething problems had been resolved by
mid 2005 (and ex hypothesi also by May 2006) so that CML would have
carried out 100 per cent of the replacement volumes if British Gas had not
pushed for the reduction. The reduction to 85 per cent was therefore
evidence of actual foreclosure arising from the Legacy MSAs.
10. This point is
not related to the wider issues of whether the existing CMOs could have
undertaken much greater volumes of work which might have become available
if the Legacy MSAs had not been concluded in their present form and the
gas suppliers had decided to transfer much more of their metering work to
CMOs. This point is therefore unaffected by the rulings of the Chairman of
8 October 2008 ([2008] CAT 26) and 17 October 2008 ([2008] CAT 30). Wider
issues of the ability of the existing CMOs to absorb higher volumes of
work than were in fact contracted for were, and remain, irrelevant to
the case. This point was simply whether CML could have carried out the
level of work that they were originally contracted to perform.
National Grid clearly were in a position to deal with the narrow point and
they did so with the evidence of Mr James. As is apparent from paragraph
182 of the Judgment, the Tribunal was aware of the conflict between Mr
James’ evidence and that of Mr Lee and the Tribunal preferred that of Mr
Lee. There is no point of law or procedural unfairness arising from
this.
Ground 4: no overall harm to consumers
11. National Grid
assert that because Article 82 is aimed at enhancing consumer welfare, it
follows that the regulator must show that the alleged abusive conduct has
a direct |
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adverse effect on consumers.
Since, National Grid argue, there were benefits to consumers, for example
from the overall reduction in rentals on legacy meters, this element has
not been established and hence the conduct is not abusive.
12. National Grid’s
argument is one that has been put to, and dismissed by, the Court of
Justice on many occasions. The Court has robustly rejected the idea that
it is necessary to show that alleged abusive conduct directly harms
consumers. For example in Case C-95/04 P British Airways plc v
Commission [2007] ECR I-2331, the Court of Justice confirmed that
Article 82 “is aimed not only at practices which may cause prejudice to
consumers directly, but also at those which are detrimental to them
through their impact on an effective competition structure” (paragraph
106). The Court of First Instance did not therefore need to examine
whether BA’s conduct had caused prejudice to consumers but could properly
focus on whether the bonus schemes at issue had a restrictive effect on
competition. Similarly here, once the Tribunal had upheld the findings of
the Authority that the contested Legacy MSA provisions resulted in
significant actual and potential foreclosure of competition and were not
objectively justified, there was no need to consider further whether there
was a direct adverse effect on consumers.
Ground 5: penalty
13. National Grid’s
point concerning deterrence is misconceived since the Authority clearly
stated at paragraph 6.62 of the Decision that there had been no increase
in the level of the penalty for the purpose of deterrence.
14. As to
seriousness, National Grid’s arguments before and at the hearing did not
focus on attacking the 4 per cent starting point. Rather they simply
transferred the arguments that had been originally made in support of
their assertion that there was no negligent infringement here to support
an argument that the Authority’s involvement in the development of the
Legacy MSAs should mitigate the fine imposed.
15. The Tribunal is
not bound to follow the step by step approach to calculating the fine that
the Authority followed: see paragraph 201 of the Judgment. The Tribunal
considers that a reduction of £11.6 million in the fine imposed on
National Grid is a substantial |
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5 |
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recognition of the points made in
paragraph 50 of the Request, balanced against the fact that the Tribunal
upheld the finding of infringement in almost every respect.
Other matters
16. National Grid
may, if so advised, renew their application for permission to the Court of
Appeal within 14 days pursuant to CPR 52.3(3) and paragraph 21.10 of the
practice direction on appeals. Should any such application be made, a copy
of this ruling together with copies of National Grid’s letter of 29 May
2009 requesting permission to appeal and the Authority’s and Interveners’
letters opposing National Grid’s request should be placed before the Court
of Appeal.
17. In the light of
our rejection of National Grid’s request, the question of suspending the
operation of the directions set out in the Decision, as revised in
accordance with paragraph 229 of the Judgment, does not arise. However, in
case National Grid renew their application for a stay before the Court of
Appeal, we make the following comments. In their letter of 5 June,
National Grid accepted that there is no reason to postpone making as much
progress as possible towards negotiating new arrangements to replace the
Legacy MSAs, so that the parties would be in a position to adopt such
arrangements rapidly in the event that any appeal is dismissed. We
entirely agree with this. The only question therefore is whether if such
negotiations were effectively concluded before any appeal were disposed
of, National Grid should be allowed to hold back from actually
implementing the contractual changes with the gas suppliers, pending that
disposal. As we indicated in correspondence, we would have considered
granting such an application only if National Grid had been prepared to
offer undertakings to mitigate the effect of the MSA provisions, bearing
in mind that the adverse effect of those provisions is felt largely by the
CMOs rather than by the gas suppliers.
Conclusion
18. For all the foregoing reasons the Tribunal
unanimously: |
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ORDERS THAT: |
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National Grid’s request for permission to appeal be
refused. |
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Vivien Rose
Professor Paul Stoneman
David
Summers |
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Charles Dhanowa
Date: 30 June 2009
Registrar |
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