Office of Fair Trading & Ors v IBA Health Ltd

Under section 33(1) of the Enterprise Act 2002, the Office of Fair Trading must itself reasonably believe that a merger is or may be expected to cause a substantial lessening of competition. The possibility must exceed the fanciful, but need not satisfy a mathematically defined probability or a separate test based on what the Competition Commission might decide.

A reviewing tribunal must apply ordinary judicial review principles. It may examine whether relevant facts existed, were considered and reasonably supported the statutory belief. Where the authority’s material and reasoning do not adequately resolve identified competition concerns, its decision not to refer may be quashed.

iSoft Group plc proposed to acquire Torex plc. Both supplied healthcare software, and the Office of Fair Trading accepted that the transaction would create a relevant merger situation. It nevertheless decided under section 33(1) of the Enterprise Act 2002 not to refer the proposed merger to the Competition Commission. It relied principally on changes expected from the National Programme for IT.

IBA Health Ltd successfully challenged that decision before the Competition Appeal Tribunal under section 120. The Tribunal quashed the decision and remitted it for reconsideration. The Office of Fair Trading, iSoft and Torex appealed on points of law.

The Court of Appeal considered the proper threshold under section 33(1), the judicial review principles governing the Tribunal, and whether the Office of Fair Trading had reasonably justified its conclusion.

1. The appeal was dismissed unanimously. The Competition Appeal Tribunal had misstated the section 33(1) threshold but had nevertheless reached the correct ultimate conclusion that the Office of Fair Trading’s decision could not stand.

2. The Vice-Chancellor, with whom Mance and Carnwath LJJ agreed, rejected the Tribunal’s two-stage or “room for two views” test. Section 33(1) requires the Office of Fair Trading itself to believe that a merger is or may be expected to cause a substantial lessening of competition. It does not require a prediction about whether the Competition Commission might reach that conclusion after fuller investigation.

3. The statutory language should receive its ordinary meaning. The required belief is more positive than suspicion and must be reasonable and objectively justified by relevant facts. Although “may be expected” by itself denotes an expectation, the opening words “believes that it is or may be the case” impose a lower threshold at the reference stage. A fanciful possibility is excluded, but no precise mathematical probability is appropriate. The word “significant” in the Office’s published formulation was capable of setting the threshold too high.

4. Section 120(4) required the Tribunal to apply ordinary judicial review principles. Its specialist constitution did not authorise a merits appeal or a different body of review principles. Those principles remain sensitive to statutory context and permit inquiry into whether the facts needed to support a statutory belief existed, were considered and could reasonably sustain the conclusion.

5. The applicant retained the legal burden throughout. Once a prima facie case arose from the Office’s rapid rejection of concerns identified in its own issues letter, however, an evidential burden arose for the Office to explain and justify the change. The Tribunal had not unlawfully reversed the legal burden.

6. The Tribunal was entitled to find that the Office had not reasonably resolved the identified uncertainties. Its conclusions were expressed as likelihoods favouring clearance but did not exclude the opposing likelihood required to justify a belief that the merger might substantially lessen competition. The decision also failed adequately to address significant features including the horizontal nature of the merger, high combined market share, limited substitutability, network effects and information asymmetry.

7. Carnwath LJ added that statutory reasons need not resemble a judicial judgment or reproduce all underlying evidence. They must be intelligible and adequately address the substance of the arguments. Supplementary evidence may amplify the reasons on review, provided it does not conceal or alter the true grounds of decision.

1. Court of Appeal (Civil Division): By [2004] EWCA Civ 142, unanimously dismissed the appeals. Although the Competition Appeal Tribunal had misstated the section 33(1) threshold, its order quashing the Office of Fair Trading’s decision was upheld.
2. Competition Appeal Tribunal: By judgment dated 3 December 2003, quashed the Office of Fair Trading’s decision not to refer the merger and remitted the matter for reconsideration. On 18 December 2003 it granted permission to appeal.
3. Office of Fair Trading: By decision dated 6 November 2003, declined to refer the proposed merger to the Competition Commission under section 33(1) of the Enterprise Act 2002.