Digicel Jamaica Ltd and Another v Fair Trading Commission

• Jurisdiction: Jamaica
• Judge: Harris JA,Morrison JA,Dukharan JA
• Judgment Date: 19 December 2014
• Neutral Citation: [2014] JMCA Civ 48
• Court: Court of Appeal (Jamaica)
• Docket Number: CIVIL APPEAL NO 75/2012
• Date: 19 December 2014

[2014] JMCA Civ 48

JAMAICA

IN THE COURT OF APPEAL

SUPREME COURT

Before:

The Hon Mrs Justice Harris JA

The Hon Mr Justice Morrison JA

The Hon Mr Justice Dukharan JA

CIVIL APPEAL NO 75/2012

Between

Digicel Jamaica Limited

1st Appellant

Oceanic Digital Jamaica

2nd Appellant

and

Fair Trading Commission

Respondent

and

Cable & Wireless Jamaica Ltd

Interested Party

Michael Hylton QC and Mrs Georgia Gibson Henlin instructed by Henlin Gibson Henlin for the appellants

Dr Delroy Beckford and Miss Wendy Duncan instructed by Fair Trading Commission for the respondent

Mrs Denise Kitson QC and Mrs Trudy-Ann Dixon-Frith instructed by Grant Stewart Phillips and Co for the interested party

AGREEMENTS - Stock purchase agreement - Whether the Fair Competition Act applicable to stock purchase agreements - Telecommunications Act, s. 17 - Mergers and acquisitions - Fair Competition Act, s. 17

Harris JA

1 On 31 January 2012, the appellants made an application in the court below concerning the issue of the applicability of the Fair Competition Act (“FCA”) to a stock purchase agreement between them. It was ordered that there be a separate trial of the following issues:

• ‘a. Whether the Fair Competition Act applies to the agreement or the transactions effected by the agreement which is the subject of these proceedings.

• b. Whether the Claimant [Fair Trading Commission] has jurisdiction in relation to the agreement or the transactions effected by the agreement which is the subject of these proceedings.’

2 The trial on these preliminary issues was heard by Sinclair-Haynes J. On 15 May 2012, she made the following orders:

The appellants now challenge these orders.

• ‘ 1. The FTC has jurisdiction over the Telecommunications Industry.

• 2. Section 17 of the FCA applies in relation to agreements or transactions that fall under Section 17 of the TCA.

• 3. Section 17 of the TCA applies to mergers and acquisitions such as the transaction between Digicel and Claro.’

Background

3 The 1 ^st appellant is a limited liability company, which was at all material times carrying on the business of, among other things, providing voice telephony and data services in Jamaica. The 2 ^nd appellant is also a limited liability company trading as ‘Claro’ and was at all material times also engaged in the business of voice telephony and data services in Jamaica. The respondent is a body corporate established under section 4 of the FCA which, among other things, carries out investigative procedures into the conduct of business practices in Jamaica.

4 On 11 March 2011, the media reported that the 1 ^st appellant had announced that it had entered into an agreement with America Movil to acquire its Claro business in Jamaica and that it would sell to America Movil its business in El Salvador and Honduras (“the agreement”). On 15 March 2011, the managing director of Cable and Wireless, trading as LIME, wrote to Mr David Miller, the executive director of the respondent, in relation to the agreement expressing the view that ‘although the exact commercial structure of the transaction had not been made public’, it was ‘clear that the parties intend to enter into an agreement or arrangement that will have the effect of substantially lessening competition to the detriment of consumers’ and requesting ‘the [respondent's] confirmation that it will be undertaking an urgent and thorough review of the proposed transaction as it is authorized to do pursuant to the Fair Competition Act’. On the same date, LIME also wrote a letter to the Office of Utilities Regulation (“OUR”) in which it advanced similar complaints about the agreement. Subsequently, on 23 March 2011, the head of the Legal and Regulatory Department of LIME again wrote to Mr Miller reinforcing that it was LIME'S view that the transaction would result in a lessening of competition and that it should therefore not be permitted to proceed or should only be allowed to proceed subject to the imposition of certain conditions designed to safeguard and develop competition. On 25 March 2011, Mr Miller responded to LIME's letter of 15 March indicating that ‘independent of your formal complaint, we have begun an investigation into the proposed acquisition agreement with a view to deciding whether the effect of same will result in a substantial lessening of competition’.

5 Pursuant to section 17(3) of the Telecommunications Act ( TCA), an application was made to the relevant Minister, being the Minister with Responsibility for Information, Telecommunications and Special Projects for approval of the agreement and this approval was subsequently granted with the condition that the 1 ^st appellant ‘maintain a separate network and complete a separate build-out of 90% penetration of the island as required under the original Claro licences’.

6 In September 2011, LIME commenced proceedings in claim no HCV 2011/05659 seeking judicial review of the Minister's decision. It sought an order quashing the Minister's approval and a declaration that the Minister's approval was unlawful. LIME also sought an order compelling the respondent to investigate the matter. The application for judicial review was refused.

7 On 8 December 2011, the respondent prepared a report in which it documented the results of its investigation ‘undertaken pursuant to section 17 of the Fair Competition Act’, and on 9 December 2011, it commenced proceedings by fixed date claim form seeking several declarations against the appellants, the most significant of which, being:

‘A Declaration that the 1 ^st and 2 ^nd Defendants have contravened the prohibitions and/or the obligations (or any part of the said prohibitions and or obligations) imposed in Part III of the Fair Competition Act 1993 and/or in particular that the 1 ^st and 2 ^nd Defendants have in the course of trade or business, attempted to give effect or [sic] given effect to provisions of an agreements which provisions have as their purpose, effect, or likely effect, the substantial lessening of competition in a market in breach of Section 17 of the said Act.’

The other declarations sought were that certain provisions of the agreement were of no effect and unenforceable. The respondent also sought an injunction restraining the appellants from giving effect to these provisions and an order that the appellants pay to the Crown such pecuniary penalty not exceeding $5,000,000.00 for each breach.

8 In its particulars of claim, the respondent stated that, pursuant to section 5 of the FCA, it has jurisdiction to investigate the conduct of businesses in Jamaica on its own initiative or at the request of any person to determine whether any enterprise is engaging in business practices in contravention of the FCA. Paragraphs 6, 7, 15, 16, 25, 34 and 41–43, which are of particular significance, are set out below:

‘6. In March of 2011 the Claimant became aware through media reports that the 1 ^st and 2 ^nd Defendants had interests in or were parties to an agreement whereby among other things, the 2 ^nd Defendant's parent company America Móvil would acquire the 1 ^st Defendant's company in Honduras in exchange for which the 1 ^st Defendant would acquire the 2 ^nd Defendant, Oceanic Digital Jamaica Limited, which trades as Claro.

7. Pursuant to section 5 of the Act, the Claimant's staff commenced investigations on its own initiative into the media reports regarding the agreement and its likely effect on competition in the market in Jamaica for voice and text messaging services

…

15. Further, article 7 of the agreement allows the 2 ^nd Defendant to transfer its telecommunications licence and spectrum to the 1 ^st Defendant.

16. If the 2 ^nd Defendant transfers its telecommunications licence and spectrum to the 1 ^st Defendant this action would in effect amount to the 1 ^st Defendant not only facilitating the 2 ^nd Defendant's exit from the relevant market, but also the likely or actual barring of the entry of a 3 ^rd party from the relevant market as, among other things, there would not be enough spectrum remaining to facilitate the cost-effective entry of a new competitor in the relevant market or the cost-effective expansion of an existing competitor in the relevant market. Attached … is a copy of a letter from the Spectrum Management Authority dated August 24, 2011, indicating impediments to a new entrant for cost-effective build out of infrastructure to provide services in the relevant market were the 1 ^st Defendant to acquire the spectrum of the 2 ^nd Defendant as contemplated by the agreement referred to herein.

…

25 It is also unlikely that LIME will be able to exert competitive restraints on the 1 ^st Defendant in the short run or within two years because, among other things it is not an equally efficient, or is a less efficient competitor.

…

34. Therefore, throughout the period of the 2 ^nd Defendant's operations in the voice and text messaging services market, the 2 ^nd Defendant was an effective competitive restraint on the 1 ^st Defendant's behavior in the market

…

41. Consequently, as a result of the foregoing, the 1 ^st and 2 ^nd Defendants' actions by signing, attempting and/or taking steps to give effect to the agreement that contains provisions that have as their purpose, effect, or likely effect of the substantial lessening of competition in the relevant market is in breach of section 17 of the Act.

42. The Defendants intend to and have taken steps to consummate the subject agreement in breach of section 17 of the Act including but not limited to the application by the 1 ^st Defendant to the relevant Minister under the Telecommunications Act, 2000 for the transfer of the 2 ^nd Defendant's telecommunications licence.

43. The 1 ^st Defendant has since said application for transfer of the 2 ^nd Defendant's telecommunications licence...