Factual and Procedural Background
Company A operated a ferry service between The City (Dover) and The City (Calais) until 16 November 2011 when it entered liquidation in France and ceased trading. After several months in “hot lay-up,” substantially all of Company A’s assets—including three passenger vessels, brands, customer data and spare parts—were purchased on 2 July 2012 by Company C, the parent company of the Channel Tunnel operator. Company C’s bid was integrally linked to Company D, a worker-owned co-operative formed by former employees of Company A. Pursuant to an agreed plan under French law (PSE3), Company B (Company A’s state-owned parent) paid a financial incentive (“dowry”) for each redundant employee re-hired by Company D.
The renewed ferry service commenced on 20 August 2012, operated by a subsidiary of Company C (Company E) with crews supplied by Company D; 80-90 per cent of the workforce were former Company A employees. On 29 October 2012, Office A referred the transaction to Commission A (now Authority A). Commission A and, on remittal, Authority A concluded that Company C’s purchase created a “relevant merger situation” under Part 3 of the Enterprise Act 2002 and, citing competition concerns, prohibited Company C from operating the ferries from Dover for ten years.
Company C and Company D successfully challenged that decision before Tribunal A in “Eurotunnel I,” which remitted the matter for fuller reasoning on employee transfer and asset maintenance. Authority A reaffirmed its earlier view, and Tribunal A upheld that stance in “Eurotunnel II.” A majority of the Court of Appeal (Sir Colin Rimer and Judge Tomlinson) reversed the Tribunal, holding that only “bare assets” had been acquired; Judge Arden dissented. Authority A appealed to the Supreme Court, with Company D (by then in liquidation) not participating. Attorney Bacon appeared as Advocate to the Court and Company C intervened.
Legal Issues Presented
- Whether the assets acquired by Company C and Company D on 2 July 2012 constituted an “enterprise” or merely “bare assets” for the purposes of sections 22-26 of the Enterprise Act 2002.
- Consequently, whether a “relevant merger situation” existed, conferring jurisdiction on Authority A to impose competition remedies.
- Whether Authority A’s conclusion that an enterprise had been acquired was irrational and should be set aside on judicial review.
Arguments of the Parties
Appellants (Authority A)
- The statutory concept of an “enterprise” focuses on economic activity and continuity; a temporary cessation of trading does not, of itself, preclude a finding that activities subsist.
- Company C acquired substantially all of Company A’s operational assets together with the economic capacity to restart the service swiftly—ships in hot lay-up, trained crews and brand goodwill—amounting to more than a mere collection of factors of production.
- The €25,000 incentive per re-hired employee under PSE3 created a concrete link between the assets and the workforce, underscoring continuity.
- Authority A’s specialised assessment of economic continuity was entitled to deference unless irrational; the Court of Appeal applied an unduly formal, legalistic test.
Respondent (Advocate to the Court)
- The redundancies ordered by the French court on 9 January 2012 irreversibly severed the connection between Company A and its employees; any later hiring by Company D was from the open labour market.
- Because Company C did not purchase Company A as a going concern, but only its physical assets, no pre-existing “enterprise” was transferred; Authority A therefore lacked jurisdiction.
- The Court of Appeal correctly found Authority A’s contrary conclusion irrational, as it conflated re-employment with transfer.
Intervener (Company C)
- Supported the Respondent, adding that the ten-year operating prohibition was disproportionate absent jurisdiction.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|
| [2015] EWCA Civ 487 (Court of Appeal decision under appeal) |
Majority held that only bare assets, not an enterprise, were acquired. |
Supreme Court examined and ultimately rejected the majority’s reasoning. |
| Eurotunnel I – [2013] CAT 30 |
Set out the distinction between acquisition of an enterprise and bare assets (economic continuity test). |
Supreme Court endorsed Tribunal A’s statement of principle as “substantially correct.” |
| Eurotunnel II – [2015] CAT 1 |
Upheld Authority A’s finding that a relevant merger situation existed. |
Cited as the factual and analytical foundation that the Court of Appeal overturned. |
| British Telecommunications plc v Telefónica & ors – [2014] UKSC 42 |
Appellate courts must exercise caution before overturning economic judgments of expert regulators. |
Relied on to underscore the limited scope for judicial substitution of economic assessments. |
| AAH Holdings plc and Medicopharma NV (1992) (Commission B decision) |
Illustrated that temporary suspension of trading does not necessarily avoid merger control. |
Used as an example supporting Authority A’s view that cessation of activity is not decisive. |
Court's Reasoning and Analysis
The Supreme Court first held that determining whether a “relevant merger situation” exists is a question of law informed by economic context, but that detailed factual evaluation lies within Authority A’s expertise. It rejected a purely formal approach that would confine the concept of an “enterprise” to businesses operating as going concerns at the moment of transfer.
Interpreting sections 22-26 and 129 of the Enterprise Act 2002, the Court reasoned that:
- An enterprise is defined by its activities, but those activities need not be underway at the precise moment of acquisition if the capacity to resume them still exists.
- The statutory distinction between “enterprise” and “bare assets” turns on economic continuity—the acquirer must obtain something more than a set of unconnected production factors, namely a cohesive set of assets whose combined value derives from their previous joint exploitation.
- A cessation of trading is therefore relevant but not determinative; its weight depends on duration and surrounding circumstances.
Applying that test, the Court accepted Authority A’s findings that:
- The ships were purpose-built for the Dover-Calais route, maintained in hot lay-up, and could be (and were) redeployed quickly.
- The crews, although formally dismissed, were re-engaged via Company D with financial inducements directly tied to their prior employment, providing an operational advantage not available on the open market.
- These factors conferred “considerable continuity and momentum,” meaning Company C acquired the “embers of an enterprise” rather than isolated assets.
The Court concluded that Authority A’s evaluation was logical and within its expertise. The Court of Appeal’s focus on the formal termination of employment relationships was characterised as unduly rigid and insufficiently attentive to economic substance.
Holding and Implications
APPEAL ALLOWED. The Supreme Court restored Authority A’s determination that Company C’s acquisition constituted a “relevant merger situation,” thereby confirming the regulator’s jurisdiction to impose competition remedies.
Immediate consequences include the reinstatement of the ten-year prohibition on Company C operating the acquired vessels from Dover. More broadly, the ruling affirms that temporary cessations of business activity do not, without more, shield transactions from UK merger control and underscores judicial restraint in second-guessing specialised economic assessments.