Judgment

Judgment of the Tribunal in connection with applications by Intercontinental Exchange, Inc. (“ICE”) for review, under section 120 of the Enterprise Act 2002 (“the Act”), of the following decisions of the Competition and Markets Authority (“the CMA”): (1) the CMA report dated 17 October 2016 (“the Report”) in which it found that ICE’s purchase of the entire issued share capital of Trayport Inc and GFI TP Ltd and their subsidiaries (together, “Trayport”) (“the Transaction”) was likely to result in a substantial lessening of competition (“SLC”) within the meaning of section 35 of the Act; and (2) the direction (“the Direction”) issued by the CMA on 10 November 2016 directing ICE and Trayport (“the Merging Parties”) to cease implementation of an agreement entered into between the Merging Parties on 11 May 2016 (“the New Agreement”).

On 11 January 2016, the CMA exercising its powers under section 72(2) of the Act made an initial enforcement order (“IEO”) pursuant to which Trayport had to carry on its business separately from ICE.

In the Report, the CMA decided it would be appropriate to impose a final order requiring: (a) a full divestiture of Trayport through a sales process under a trustee; and (b) the unwinding of the New Agreement.

By an application filed on 11 November 2016 (“NoA1”), ICE challenged the lawfulness of the Report on various grounds:

Ground 1: ICE submitted that the CMA should have found that the New Agreement was part of the counterfactual, that is, that the New Agreement would have been entered into absent the Transaction.

Ground 2: This ground contained several arguments regarding the CMA's assessment of the benefits to ICE of a partial foreclosure strategy.

Ground 3: ICE argued that the CMA erred in its assessment of the costs to the merged group of implementing a partial foreclosure strategy.

Ground 4: This ground challenged the CMA’s rejection of the remedy proposal put forward by the Merging Parties.

Ground 5: ICE submitted that the CMA lacked the vires to require termination of the New Agreement, and to require in the Direction that implementation of the New Agreement should continue to be suspended pursuant to the IEO.

By a further application filed on 17 November 2016 (“NoA2”), ICE challenged the lawfulness of the Direction on various grounds:

Ground 1: ICE contended that the Direction to cease implementation of the New Agreement was ultra vires for the same reason as the finding in the Report that the New Agreement should be terminated (this ground replicated Ground 5 of NoA1).

Grounds 2 and 3: Both of these grounds assumed that the CMA had the requisite vires to require the termination of the New Agreement and to require that its implementation be suspended (i.e. they assumed that ICE had failed on Ground 5). These grounds attacked the rationality/proportionality of the Direction to suspend implementation. It was said in both grounds that the Merging Parties could and should have been allowed to implement the New Agreement at least in the short term, until any new owner of Trayport took ownership.

For the reasons set out in the Judgment, the Tribunal dismissed Grounds 1-4 of NoA1.

In relation to Ground 5 of NoA1 and Ground 1 of NoA2, the Tribunal considered that the CMA’s remedy powers under the Act are limited to those required to remedy the SLC. However, the Report provided no articulation as to why the requirement to unwind the New Agreement would help ensure the effectiveness of the divestiture remedy. The Report failed to satisfy the requirements specified by Lord Brown in South Buckinghamshire District Council v Porter (No. 2) (quoted in para 20(8) of BAA Ltd v Competition Commission [2012] CAT 3) and the reasons for the CMA’s decision in this respect were too cursory and too conclusory to meet the standards of intelligibility and adequacy. The Tribunal held that this represented a serious failure.

Accordingly, the Tribunal quashed the Report to the extent that it required the unwinding of the New Agreement and remitted it to the CMA to reconsider whether or not to require the New Agreement to be unwound in the light of the Tribunal’s findings.

The Tribunal did not, however, quash the Direction pending the CMA’s reconsideration of the issues as regards the unwinding of the New Agreement. The Tribunal invited the CMA and ICE to agree a form of Order to address the position pending the remittal.

Given the Tribunal’s conclusions in relation to Ground 5 of NoA1 and Ground 1 of NoA2, the Tribunal did not consider it necessary to determine Grounds 2 and 3 of NoA2.