On 22 November 2017, the CMA imposed a fixed penalty of £20,000 on Hungryhouse for failing to disclose documents during the Just Eat/Hungryhouse merger inquiry. The documents were responsive to a compulsory information request, and were only provided to the CMA at a later stage in the inquiry, resulting in a delay to the enquiry timetable. This is the first time the CMA has used its power to impose a penalty for failure to comply with an information request in a merger inquiry.
Background
Section 109 of the Enterprise Act 2002 gives the CMA the power to require the production of documents or the attendance of witnesses to give evidence. On 31 May 2017, the CMA issued a section 109 notice to Hungryhouse (the "First Notice"), requiring:
- all emails from and with the CEO of its parent company relating to strategic options for Hungryhouse. 29 emails were provided in response; and
- all documents and analyses in the past three years relating to a strategy to move consumers from ordering directly from a restaurant to ordering through the Hungryhouse platform. Five documents were provided in response.
The CMA issued further information requests in July and August. Hungryhouse provided around 400 documents in response to those requests. The CMA was concerned that many of those documents were responsive to the First Notice and were also inconsistent with Hungryhouse's submissions. This led to the CMA issuing further information requests and extending the inquiry timetable. The merger was cleared unconditionally on 16 November.
The CMA considered that Hungryhouse had failed to comply with the First Notice without reasonable excuse:
- 49 documents that were responsive to the First Notice were not disclosed at the relevant time.
- Hungryhouse should have appreciated that its process for identifying documents (including the search terms used) created a substantial risk of missing responsive documents. The assessment and production of emails involving the CEO should have been prioritised. Moreover, Hungryhouse did not discuss its process with the CMA.
- The CMA rejected Hungryhouse's claim that the First Request was too broad in scope. It noted that Hungryhouse had not raised concerns on a draft version of the First Notice, that the volume of documents was not unmanageable, and that parties must ensure that they have sufficient internal or external resources to comply with CMA requests.
The CMA therefore used its power under section 110 to issue a £20,000 fixed penalty. The maximum fixed penalty it could have issued was £30,000.
Implications
This penalty emphasises the need for parties to respond comprehensively and on time to CMA information requests. The CMA has limited time to conduct merger inquiries and the parties' documents can be crucial to its assessment. Concerns regarding the scope of an information request and processes for identifying responsive documents should be discussed transparently with the CMA in advance of the final deadline.
This issue is not limited to merger inquiries:
- The CMA has similar powers in Competition Act cases and market investigations. In April 2016, it fined Pfizer for failing to respond to an information request in a Competition Act investigation.
- The European Commission exercised its own powers in this area for the first time in May 2017, fining Facebook €110m for providing misleading information during the 2014 Facebook/Whatsapp merger review.
A merger clearance obtained on the basis of incomplete information may also be vulnerable to challenge. In 2014 the Competition Appeal Tribunal quashed the Phase I clearance of the IRI/Aztec merger as the parties had failed to disclose material information to the Office of Fair Trading. The case was reinvestigated and cleared 12 months later.
All articles in the December edition of the Competition newsletter
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