Tesco Plc v Competition Commission (Judgment and Annexes), Court of Appeal - United Kingdom Competition Appeals Tribunal, March 04, 2009,  CAT 6
|Resolution Date:||March 04, 2009|
|Issuing Organization:||United Kingdom Competition Appeals Tribunal|
|Actores:||Tesco Plc v Competition Commission (Judgment and Annexes)|
Neutral citation  CAT 6
IN THE COMPETITION
Case Number: 1104/6/8/08
London WC1A 2EB
4 March 2009
Sitting as a Tribunal in England and Wales
- supported by -
ASDA STORES LIMITED
MARKS AND SPENCER PLC
THE ASSOCIATION OF CONVENIENCE STORES
Mr. Nicholas Green QC, Mr. Mark Hoskins and Mr. Julian Gregory (instructed by Freshfields Bruckhaus Deringer LLP) appeared on behalf of Tesco Plc.
Mr. Peter Roth QC, Mr. Daniel Beard, Ms Valentina Sloane and Mr. Ewan West (instructed by the Treasury Solicitor) appeared on behalf of the Competition Commission.
Mr. Tim Ward (instructed by Slaughter and May) appeared on behalf of Asda Stores Limited.
Ms Kassie Smith (instructed by Lovells LLP) appeared on behalf of Waitrose Limited.
Mr. Robert O'Donoghue (instructed by SJ Berwin LLP) appeared on behalf of Marks and Spencer Plc.
By notice of application dated 30 June 2008 Tesco plc (``Tesco'') applies pursuant to section 179 of the Enterprise Act 2002 (``the Act'') for a review of part of the decision of the Competition Commission (``the Commission'') contained in a Report entitled ``The supply of groceries in the UK: market investigation'' dated 30 April 2008 (``the Report'').
In applications for review under section 179 of the Act the Tribunal is required by subsection 179(4) to apply the same principles as would be applied by a court on an application for judicial review.
The Report is the culmination of a wide-ranging market investigation lasting almost two years and attracting considerable public attention. The scale and scope of the investigation is note-worthy: the Commission collated a dataset of more than 14,000 UK grocery stores covering various aspects of competition between grocery retailers, received approximately 700 submissions from main and third parties, and held some 80 hearings with interested parties. The Commission found that, in many important respects, competition in the UK groceries industry is effective and delivers good outcomes for consumers.
However, the Commission also found that a combination of one or more of the features of certain local markets for the retail supply of groceries by larger grocery stores prevents, restricts or distorts competition in connection with the supply of groceries by larger grocery stores in those markets. The features in question are: (1) high levels of concentration in a number of local markets which have persisted over several years; (2) barriers to entry or expansion in certain local markets caused by the planning regime which limits the construction of new larger grocery stores and imposes greater costs and risks on some retailers than on others; (3) barriers to entry caused by the control of land in some highly concentrated markets by incumbent retailers. The Commission estimated the consumer detriment arising from these features to be £105-£125 million in additional profits a year at larger grocery stores and prices nationally at a higher level than would be the case were these stores facing stronger local competition.
The Commission adopted a package of measures to remedy, mitigate or prevent the adverse effects on competition and detrimental effects on consumers which it had identified. Of particular importance for the present application was the Commission's decision to recommend to the Government and The Northern Ireland Executive, the Scottish Government and the Welsh Assembly Government (together ``the devolved administrations'') that a ``competition test'' should be implemented within the planning system, with the Office of Fair Trading (``OFT'') acting as statutory consultee. The OFT would be expected to provide advice to the local planning authority (``LPA'') on whether a particular retailer has passed or failed the competition test. Applications would pass the test if within the area bounded by a 10-minute drive-time of the development site: the grocery retailer that would operate the new store was a new entrant to that area; or the total number of ``fascias'' in that area was four or more; or the total number of fascias in that area was three or fewer but the relevant grocery retailer would operate less than 60 per cent of groceries sales area (including the new development in relation to larger grocery stores). We describe the competition test in more detail below. The test is essentially designed to prevent LPAs from granting planning permission for the construction or expansion of a large grocery store if there is already a high level of concentration in the local market for large grocery stores, and the retailer applying for permission has (or would have) a substantial part of the market.
The Commission's conclusion that certain features of the groceries market give rise to an adverse effect on competition and detrimental effects on customers is not challenged in these proceedings. Nor does Tesco challenge any of the Commission's findings of fact contained in the Report. Indeed reliance is placed by Tesco on those findings. Tesco's application challenges the lawfulness of the decision to recommend the competition test on two main grounds. In relation to both grounds Tesco's case is that the Commission's decision failed properly to take account of relevant considerations which ought to have formed part of its assessment.
Tesco seeks an order quashing those parts of the Report which set out the remedies relating to the competition test. In this regard Tesco identified paragraph 43 of the Summary of the Report and paragraphs 11.12 to 11.16 and 11.437 to 11.441 of the Report itself, whilst reserving the right to make further submissions on the appropriate scope of relief at any stage in the proceedings, in particular after the handing down of the judgment of the Tribunal (see letter dated 11 July 2008).
Asda Stores Limited (``Asda''), Marks and Spencer Plc (``M&S''), Waitrose Limited (``Waitrose'') and Association of Convenience Stores (``ACS'') were granted permission to intervene in Tesco's application, and in due course filed detailed Statements in Intervention in support of the Commission's position. Thereafter ACS wrote to the Tribunal indicating that it did not intend to make any further written or oral submissions. The other interveners and the main parties lodged skeleton arguments and appeared through counsel at the hearing. Following the hearing the Tribunal received additional written submissions from both the Commission and Tesco.
Annexed to the Commission's Defence were two witness statements, one by Mr Peter Freeman, the Chairman of the Commission and of the Group responsible for the groceries market investigation, and the other by Dr Benoit Durand, the Economics Director for the investigation. Tesco did not serve a Reply as such, but lodged expert evidence in reply. This consisted of witness statements by Professor Jerry Hausman of the Massachusetts Institute of Technology, and Mr Simon Gaysford and Mr Paul Johnson, both of Frontier Economics Limited. With the exception of the evidence of Mr Freeman, hardly any reference was made by any party to the substance of this evidence in the course of the hearing. At the outset of his opening submissions to us, and again at the end of them, Mr Nicholas Green QC, who represented Tesco, emphasised that whilst the allegations of inadmissibility levelled at the evidence filed by Tesco were not accepted, it was not necessary to address the points made in that evidence as these were reflected in the Report itself. The best approach was, he said, to stick to the Report. In the light of this it has not been necessary for the Tribunal to consider the admissibility of Tesco's expert evidence or indeed to consider that evidence in any detail.
THE REPORT: factual background and legal framework
Before dealing with the substance of Tesco's application, it is necessary briefly to describe the factual background and statutory framework. What follows is necessarily a very abbreviated account of an extremely detailed document comprising some 270 pages plus numerous appendices.
In 2007, an estimated £110.4 billion of grocery sales were made through nearly 100,000 grocery stores in the UK. The Commission identified seven major categories of grocery retailer in the UK. The most important category for present purposes consists of the large grocery retailers. Large grocery retailers have operations throughout Great Britain and, in some cases, Northern Ireland. These retailers carry a full-range of grocery products and have an integrated grocery wholesaling function that purchases directly from grocery suppliers. There are currently eight such large grocery retailers in the UK, namely Asda, Co-operative Group (CWS) Limited (``CGL''), M&S, Wm Morrison Supermarkets plc (``Morrisons''), J Sainsbury plc (``Sainsbury's''), Somerfield plc (``Somerfield''), Tesco and Waitrose. (See Appendix 3.1 of the Report for further detail on these large grocery retailers.)
Tesco is the largest UK grocery retailer based on reported turnover. In the year ended February 2007, it reported worldwide turnover of £46.6 billion (including VAT) and employed over 400,000 full- and part-time staff. Tesco operates a wide portfolio of stores and has a broad mix of store sizes. Over the period since 2000 Tesco has significantly expanded its grocery sales share, accounting now for an estimated 28 per cent of the market. Asda (a subsidiary of Wal-Mart Stores Inc.), M&S and Waitrose are also categorised as large grocery retailers. Their respective grocery sales shares have all steadily grown between 2000 and 2007. (See Appendix 3.1 to the Report.)
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