By Jonathan Parker and Anuj Ghai
The Competition & Markets Authority (CMA) has imposed a £20,000 fixed penalty on Hungryhouse Holdings Limited (Hungryhouse). The CMA imposed the penalty under Section 110 of the Enterprise Act 2002 (EA02) for failure to comply, without reasonable excuse, with a requirement the CMA issued in a notice pursuant to section 109 EA02 dated 31 May 2017 (the First s.109 Notice). The CMA imposed the penalty on Hungryhouse on 22 November 2017, following the CMA’s unconditional clearance of its acquisition of Just Eat plc (Just Eat) on 16 November 2017 (the Transaction). This is the first time that the CMA has imposed a fine on a merging party for failure to comply with an information request.
As part of its inquiry into the Transaction, the CMA issued Section 109 notices to the parties requiring them to produce specified documents and supply specified information to the CMA. On 26 May 2017, the CMA provided Hungryhouse with a draft of the First s109 Notice. The CMA offered Hungryhouse the opportunity to raise any questions relating to the content of the draft, including the availability of the documents, information, or data requested. On 30 May 2017, Hungryhouse responded to the CMA, noting that some of the questions would be difficult to respond to in full within the relevant timeframe, as responses to particular questions would involve access to senior management emails. However, Hungryhouse added that that they would “endeavour to provide all information by the stated deadlines”.
On 31 May 2017, the CMA issued the final version of the First s.109 Notice to Hungryhouse. Question 2 required the provision “in full and unredacted form … all emails between the groups covering strategic options (eg sale, closure, investment) for Hungryhouse”. Question 6 required Hungryhouse to provide “all documents and analyses prepared by, or commissioned by, Hungryhouse in the last 3 years that relate to a strategy to move consumers from ordering directly from a restaurant through the Hungryhouse platform”. Hungryhouse responded to the First s.109 Notice by the relevant deadline (i.e., 12 June for Annex 1 questions, which included question 2 and 19 June for Annex 2 questions, which included question 6).
The CMA subsequently issued several additional information requests to Hungryhouse, including an informal request for information in July and several additional s.109 notices. On reviewing the information and documents provided by Hungryhouse in response to these additional requests, the CMA considered that various submitted emails may have been responsive to questions 2 and 6 of the First s.109 Notice. This prompted the CMA to send a letter to Hungryhouse on 1 September 2017, expressing concern about the manner in which Hungryhouse and its advisers had provided information in the course of the CMA’s inquiry. The CMA also expressed concern that documents provided subsequent to the First s.109 Notice included material which appeared inconsistent with submissions made earlier in the inquiry.
On 27 September 2017, the CMA sent an email to Hungryhouse explaining the CMA’s Inquiry Group was considering whether Hungryhouse had failed to comply with the First s109 Notice by not providing a material number of responsive documents. The CMA asked Hungryhouse to confirm whether Hungryhouse considered there to be a reasonable excuse for Hungryhouse’s failure to provide the documents in response to the First s109 Notice.
As regards the document request under Question 2, Hungryhouse argued that it tested a number of search terms and search term combinations, which had yielded more than 1,500 documents. Hungryhouse then carried out spot checks to verify the extent to which those searches would produce responsive documents. Having performed these spot checks, Hungryhouse did not consider that this would be a time-effective way of identifying responsive documents, as the searches yielded multiple, non-responsive documents. Therefore, Hungryhouse narrowed the search terms to identify emails that it considered most relevant in the context of the CMA’s request. In relation to the process for responding to question 6, Hungryhouse argued that the wording of the question did not suggest that the CMA had requested a large volume of email correspondence. Additionally, Hungryhouse asserted that the company did not prepare some of the documents that were responsive to later s.109 notices, therefore the documents were not responsive to the First s.109 Notice.
The CMA rejected both sets of arguments, and did not consider that they amounted to a “reasonable excuse” for non-compliance. The CMA issued the £20,000 penalty, (which is below the statutory maximum of £30,000 for a fixed penalty) on the basis that Hungryhouse’s failure to respond properly to its First s.109 Notice had an adverse impact on the inquiry. This adverse impact includes the CMA’s need to carry out further information gathering, which increased the cost of the inquiry and resulted in an extension of the inquiry deadline. In addition, the CMA noted that if had it not noticed that Hungryhouse had omitted responsive documents and proactively required their provision, the responsive documents may never have come to the CMA’s attention.
In finding that Hungryhouse had not provided a “reasonable excuse” for its failure to comply with the First s.109 Notice, the CMA noted that:
- Hungryhouse ought to have known that the narrowed search terms would lead to a substantial risk that responsive documents would be missed.
- Hungryhouse made no attempt to discuss with the CMA that Hungryhouse had initially identified large volumes of search results or the processes Hungryhouse had employed. Nor did the company inform the CMA that Hungryhouse risked failing to comply with the First s.109 Notice in full.
- Hungryhouse did not raise any concerns about the substance of the requests when the CMA provided the company with a draft request.
- The CMA did not consider that the number of emails identified as responsive were unmanageable in any event in the context of the inquiry.
- That Hungryhouse had provided a single presentation from 2016 in response to the First s.109 Notice did not mean that Hungryhouse was not required to provide other responsive documents to the CMA, or that Hungryhouse was permitted to select which responsive documents to produce.
The CMA’s decision to impose a penalty in this case is an important reminder to companies that they must be transparent, and must respond comprehensively to any document or information request the CMA issues . In particular:
- Companies must ensure that the processes they employ to identify responsive documents are sufficiently broad to capture all documents and information that are potentially responsive. For example, if there is a substantial risk that the employment of narrow search terms will result in missed responsive documents, then companies must use alternative methods of collecting information.
- Companies should be transparent with the CMA regarding the processes companies employ to gather responsive documents and information. More generally, if a company has concerns about the scope of a document request or the practicality of responding to it, including the timeframe within which a company is required to respond, they should raise these concerns with the CMA proactively.
- The CMA expects main parties to merger investigations to prioritise the assessment and production of responsive email communications from senior management (including the CEO) in response to information requests.
- Companies must allocate sufficient resources to ensure compliance with document and information requests. The CMA’s view is that if a company has resource constraints, a company should engage external advisors and/or third party providers to supplement its resources. The CMA will be unlikely to accept as a “reasonable excuse” the submission that companies find it difficult to cope with information requests and that responding to such requests diverts significant resources away from day-to-day business management .
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