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CAT rejects Electro Rent appeal against procedural fine

  • United Kingdom
  • Competition, EU and Trade

14-02-2019

The Competition Appeal Tribunal (CAT) has dismissed an appeal by Electro Rent against a fine of £100,000 imposed for failing to comply with the terms of an interim order (the “order”).

Interim orders are a key tool employed by the Competition and Markets Authority (CMA) which are usually imposed on parties in completed mergers when the CMA investigates. Such orders require the acquirer’s and target’s businesses to be held separately and operated independently pending the outcome of the CMA’s investigation. The terms can be particularly onerous and apply to both acquirers and targets.

The Electro Rent case:

In June 2018, the CMA fined Electro Rent for failing to comply with the requirements of the order which was imposed during the Phase II investigation into Electro Rent’s merger with Microlease. Electro Rent failed to seek the consent of the CMA, without reasonable excuse, before issuing a notice to exercise a break option to terminate the lease over its only premises in the UK. The CMA described this as a flagrant breach of the order.

Electro Rent appealed the decision, arguing that by informing the Monitoring Trustee about the intention to issue the notice there was a reasonable excuse for failing to comply with the terms of the order. Electro Rent also argued that the penalty imposed by the CMA was excessive.

The CAT rejected both grounds of the appeal. Electro Rent had not followed proper procedure by informing the Monitoring Trustee of its intentions. There were significant discrepancies between the witness statements of Electro Rent’s chairman and the Monitoring Trustee and the latter had not been put in a position to reach a properly informed decision as to whether or not the service of the notice ran the risk of breaching the order.

In rejecting the second ground of the appeal, the CAT held that the fine was set at an appropriate level to ‘bring home’ to Electro Rent and any other merging companies the importance of compliance with interim orders.

Comment:

The fine against Electro Rent and the failure of the appeal highlights the CMA’s increased focus on taking enforcement action against breaches of procedural rules. Another example is the £20,000 fine levied on Hungry House for failure to fully comply with a request for information.

In a recent speech, agency chief executive Andrea Coscelli noted that the CMA had increased its monitoring of compliance with interim orders and hinted that ‘there might be more announcements of fines soon’.

Businesses involved in merger activity would be well advised to consider potential issues which can be raised by these interim orders which typically come into force after a deal has closed. Our specialist competition team has extensive experience of managing compliance in merger processes and is well placed to assist businesses with these issues.

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