There is a global trend of increasingly burdensome demands by competition authorities conducting merger review for the submission of merging parties’ internal documents, and the CMA is no exception. In recent months the CMA has also taken greater steps to enforce such requests, in particular by fining companies for failing to comply with formal requests for documents under Section 109 of the Enterprise Act 2002 (“Section 109 Notices”).
The CMA’s Approach To Section 109 Notices
When reviewing mergers, the CMA can request information (including internal documents) either informally or by issuing a mandatory Section 109 Notice. Section 110(1) allows the CMA to impose an administrative penalty where it considers that a Section 109 Notice has not been complied with in the absence of a reasonable excuse. In complex cases, the CMA may engage with the parties on draft forms of Section 109 Notices, although the guidance published by the CMA in January 2019 makes clear that it is ultimately for the parties to ensure that they produce all relevant materials responsive to the request. The CMA will not be able to give pre-emptive assurances that engaging with a Section 109 notice in a particular way will not lead to a breach in the event that further responsive documents come to light at a later date.
The Sabre/Farelogix Penalty
On 27 September 2019, the CMA fined Sabre £20,000 for failing to comply with two Section 109 Notices requesting internal documents in connection with the CMA’s review of its anticipated acquisition of FLX, a rival supplier of IT systems that enable airlines to sell tickets and related add-ons. The breaches related to Sabre’s approach to documents treated as legally privileged in the U.S.
In March 2019, after Sabre submitted a draft merger notice together with 22 internal documents, the CMA issued a first Section 109 Notice requiring Sabre to explain the methodology used to identify such documents and provide all additional documents responsive to Questions 8-10 of the CMA’s Draft Merger Notice. In response, Sabre explained that it had searched within a pool of documents limited to those “previously produced to the [DOJ] on the basis of the review process already carried out by Sabre in connection with the investigation by the [DOJ].” It noted that around 10,000 documents responsive to the DOJ’s request had been withheld from the DOJ on grounds of legal privilege. Sabre submitted 1,117 documents in respect to the March Section 109 Notice (some of which were partially redacted on grounds of legal privilege).
In April 2019, the CMA made a further request for documents, on which it consulted in advance with the parties and the DOJ. Sabre provided a further 5,000 documents, some of which were partially redacted, having again stated that it would limit its search to the documents produced to the DOJ. Sabre submitted the final version of the Merger Notice on 19 June 2019.
On 29 June 2019, Sabre informed the CMA that Sabre’s U.S. counsel had disclosed an additional 6,740 documents to the DOJ on 3-5 June 2019 after discussions with the DOJ regarding the scope of privilege. After reviewing the additional documents submitted to the DOJ, Sabre submitted 444 further documents to the CMA.
The CMA sent Sabre a provisional penalty decision on 13 September 2019 for failure to comply with the Notices. Sabre argued that it had fully complied with the Notices because the search parameters had been “agreed” with the CMA. It also submitted that it had a reasonable excuse for any failure to comply, because the CMA had not objected to the proposed methodology, and that a fine was not appropriate because there had been no adverse impact on the CMA’s inquiry and no need to deter the conduct at issue.
The CMA found, however, that the Notice required Sabre to provide documents responsive to the questions in the Notice, not only documents responsive to a particular methodology. The CMA found that the “over-designation” of documents as privileged was “in effect, the misapplication of a methodology that, on its face, raised no objections.” Relying on external US counsel to conduct a privilege review was not accepted as a “reasonable excuse.” Finally, the CMA referred to its Guidance that “it is ultimately the parties’ responsibility to ensure that relevant material is produced.”
The AL-KO/Bankside Patterson Penalty
On 21 May 2019, the CMA imposed a £15,000 fine on AL-KO for failing to comply with two separate Section 109 Notices – one dated 29 October 2018 and one dated 27 February 2019. AL-KO was found to have infringed Section 109 by failing to produce certain documents responsive to the notices in its initial production. The CMA found that there was a pattern of errors in AL-KO’s compliance with the CMA’s processes, which was an aggravating factor in the CMA’s decision to issue a penalty. The CMA’s decision identified the following errors.
- The omission of two search terms from the search coding developed by AL-KO in its methodology for complying with the Section 109 Notice. Properly applying the two omitted search terms led to the production of an additional 258
- Searching a specific project file rather than a relevant custodian’s entire inbox. A proper search of the entire inbox led to the production of a further 388
- An assertion that there were no internal documents discussing a particular counterfactual scenario, which turned out to be incorrect when AL-KO produced four documents responsive to a further s.109 notice covering that specific issue.
- Failing to produce 517 documents responsive to the first Section 109 Notice, which AL-KO identified in the course of responding to the second notice. AL-KO suggested that the error had arisen because of limitations in the search functionality of Outlook when searching the emails of the
AL-KO submitted that these were innocent and non-deliberate human errors, which occurred while AL-KO was genuinely trying to achieve compliance. This was not considered to be a reasonable excuse by the CMA, which found that adopting an inadequate search approach was an error that could and should have been foreseen by AL-KO. These errors were the focus of the CMA’s penalty decision.
As with Sabre/Farelogix, AL-KO was initially provided with a draft form of the Section 109 Notice, and engaged with the CMA on its scope, suitable search terms, and methodology. The CMA acknowledged, however, that the errors in this instance were not as a result of the search methodology adopted being inadequate, and that the methodology was “sensible and practical” in the circumstances.
Section 109 Notices are likely to be increasingly common in the coming years, particularly in light of the greater role the CMA will take in merger review post-Brexit.
The penalties imposed on Sabre and AL-KO confirm the CMA’s strict application of the applicable rules and underline its view that companies must take responsibility for compliance, even where they have discussed their proposed methodology with the CMA in advance of providing a response. The AL-KO fine shows the importance of executing the proposed methodology with precision, while the Sabre decision demonstrates the risks of limiting the search for documents by any parameter that is not in the Section 109 Notice. Although there are often efficiencies to be gained from consistency in document production for multiple reviews, it is important that counsel in various jurisdictions are closely aligned on procedure as well as substance.
 In paragraph 4.3 of Administrative Penalties: Statement of Policy on the CMA’s approach (CMA4), the CMA notes that it may be more likely to impose a penalty for failure to comply with investigatory requirements where the CMA has provided a draft request.