MONDAY, DECEMBER 8, 2008 FILED AT 2.30PM
Neither the Prime Minister, the Chancellor nor the Business and Enterprise Secretary had the power to waive competition law when they allowed the proposed merger of Lloyds TSB and HBOS to proceed, a court heard today (Monday). Ian Forrester QC, representing The Merger Action Group [MAG] told the first day of a hearing into the legality of the Government’s move, that only parliament could have altered the legal criteria that would have permitted the deal to go ahead without reference to the Competition Commission. He said Business Secretary Lord Mandelson, who approved the controversial move on October 31 this year, ‘made an error in relation to competition law’ and that neither he, Gordon Brown nor Alistair Darling had the authority to waive the rules as set down in legislation.
A panel of three judges at the Competition Appeal Tribunal, presided over by Sir Gerald Barling QC, are hearing the appeal brought by MAG against the Government’s decision. The group, an association of businessmen, shareholders, customers and bank employees, claims Lord Mandelson acted unlawfully. Mr Forrester told the hearing that MAG had won the backing of some 630 members of the public, while First Minister Alex Salmond and Mr Peter Vicary-Smith, chief executive of Which? – Europe’s largest independent consumer body with more than 700,000 members - were among others who had written to the court in support of the appeal. Although the hearing is being heard in London, it is being conducted under Scots law because the applicants are mainly Scotland-based and the impact of the merger if it goes ahead will be felt more keenly north of the Border than elsewhere. Opening his case, Mr Forrester said MAG was ‘a group of responsible individuals pursuing a real and legitimate interest.’ He said they shared the concerns of the Office of Fair Trading [OFT] which, in a report before Lord Mandelson’s made his decision, warned that the merger could lead to a significant lessening of competition. The OFT said the takeover should be referred to the Competition Commission for further investigation. However, Lord Mandelson disregarded this advice after both Mr Brown and Mr Darling had earlier spoken publicly in favour of the merger. Mr Forrester said the proposed merger should have been open to public scrutiny, but that ‘the Government had a clear policy’ that the deal should go ahead. He added: ‘The decisions and statements by the Chancellor and the Prime Minister and the clear policy that they adopted were meant to bind, and did bind, all Government departments. ‘Any Minister, even one of great distinction who has served in several governments and the European Parliament (Lord Mandelson), could not have failed to have been influenced.
‘But what the Secretary of State should have done was to balance public interest concerns against competition concerns as expressed by the OFT.’ Instead, Mr Forrester said Lord Mandelson ‘denigrated the concerns of the OFT’ which he described as a ‘manifestation of the fettering’ of his decision. Mr Forrester said the Chancellor’s public statement in September following the collapse of the HBOS share price that the Government had made the decision to waive competition rules to allow the deal with Lloyds to go ahead was a ‘deliberate and pre-meditated statement of policy’. Yet, he said, Lord Mandelson’s decision to follow this course of action was clearly unlawful since he had rejected the OFT’s report and failed to justify the anticompetitive nature of the merger. He added: ‘Lord Mandelson failed to follow the rules and proper steps he ought to have taken when dealing with this type of merger where there are public interest concerns and considerations.’ Mr Forrester said Lord Mandelson had claimed that unless the merger went ahead, the future of HBOS would be in serious doubt even though, by then, the Government had announced a major rescue package for the banking industry. ‘It was a rather less bleak prognosis from the OFT who believed that HBOS could still be a competitive force, albeit a weaker force than it was prior to the
economic crisis,’ he said. Mr Forrester said in the longer-term, the OFT believed HBOS would be a ‘considerable player’ in the market place once it had paid back the money it would receive from the Government aid package to help it recapitalise. He said Lord Mandelson did not give enough weight to alternative solutions. He called on the tribunal to quash the Minister’s decision and refer the proposed merger to the Competition Commission.
Paul Lasok QC, for Lord Mandelson, asked the court to consider whether the Minister had behaved like a puppet or whether he had made up his own mind about waiving competition rules to let the merger proceed. He contended that Lord Mandelson did have a open mind and properly balances competition considerations against public interest concerns before making his decision.
BERR, iwith support from HBOS and Lloyds, will continue their defence tomorrow [tues] when the hearing resumes. It is expected to conclude tomorrow afternoon [tues] and Mr Justice Barling QC has indicated that the panel will endeavour to reach a quick ruling. Shareholders in HBOS are due to meet in Birmingham on Friday to vote on the proposed merger. Background to the appeal:
The circumstances which led to MAG’s formation and appeal began on September 16 when the HBOS share price fell to 88p, casting serious doubts on the bank’s ability to raise funds on the money markets. The following day, it emerged that HBOS was in advanced merger talks with Lloyds TSB. The Prime Minister Gordon Brown revealed that he had personally intervened to broker the deal and made clear the Government was prepared to ‘rip up Britain’s competition laws’ to allow the merger to go ahead. The Chancellor, Alistair Darling, added: ‘We have made a decision that we will waive the competition requirements in relation to these two banks – that’s not going to be revisited.’ On September 18, the then BERR Secretary John Hutton, announced that the Government would introduce an Intervention Order that would set aside the Office of Fair Trading’s stated concerns that the proposed merger would lead to a significant lessening of competition. Such concerns by the OFT would automatically, under competition legislation, lead to the matter being referred to the Competition Commission for further investigation. But this step was bypassed after the Government intervened.
By the beginning of October, it was recognised by both the UK and US governments that a rescue package was required to support the stability of the financial systems. The UK Government announced a package of £400 billion and on October 13 announced a total of £37 billion to be invested in three banks,RBS, Lloyds and HBOS. The Government stated that the recapitalisation was designed to help those banks receiving funds to achieve prudent but efficient capital structures. On October 31, Lord Mandelson – who had succeeded Mr Hutton – confirmed that he was overruling the OFT, claiming competition issues were outweighed by the public interest benefits of creating financial stability.
MAG’s case against the Secretary of State is based on three key points:
● In law, the Minister was obliged to keep an open mind when making his decision. However, statements made by the Prime Minister and Chancellor of the Exchequer in September ‘fettered’ the Minister, thus preventing him keeping an open mind when making his decision on October 31.
● Instead of using the legislation in place at the time of the merger as the justification for not referring the merger, the Secretary of State promoted new laws specifically to approve the merger, thereby retrospectively giving powers to himself that were not available at the time the merger was announced.
● The decision was predicated on the justification that if this specific merger did not take place HBOS would collapse and destroy stability in the financial system.
Following the Government rescue package this was no longer the case, because there was provision for the Government to provide the capital as stated by the OFT, and therefore his decision was made on a false assumption. MAG maintains that the ‘unlawful’ actions over the proposed merger of Lord Mandelson were against the interests of fair competition, HBOS, its shareholders, its customers and its workforce, and that they will stifle competition.
For further information please contact:
Ian McKerron on 07740 510411 or
Gordon Hay on 07784 772905