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On 11 February 2019 the Competition Appeal Tribunal (CAT) upheld the CMA's first infringement decision for breach of an interim order imposed on a completed merger under investigation. Electro Rent had served a break notice on the lease of its UK premises without first seeking the CMA's consent and was fined £100,000 in June 2018. The CAT dismissed Electro Rent's appeal on the basis that a reasonable person would not have believed that this conduct would not be in breach of the interim order imposed.

Earlier this year the CMA imposed a fine of £300,000 on Ausurus and its subsidiary European Metal Recycling for two separate breaches of an interim order imposed in the context of its acquisition of Metal & Waste Recycling Limited. Electro Rent was also fined a second time, £200,000, for yet another breach of the interim order, this time for having appointed its CFO as director of the target company without the CMA's prior consent. The CMA is clearly stepping up its enforcement of interim orders, which it sees as "vital to the UK merger process", and other competition authorities around the world are similarly taking a strict approach to gun-jumping offences.


Although UK merger control does not require merging parties to obtain approval before completing and implementing a transaction, the CMA does have powers to suspend integration while it is reviewing a transaction. For completed mergers the CMA routinely imposes interim orders suspending and/or preventing further integration. The CMA may also require the parties to appoint a monitoring trustee in order to ensure compliance with interim measures. Breach of an interim order can result in penalties of up to 5% of aggregate turnover of the parties involved.

In October 2017 the CMA referred the completed acquisition by Electro Rent Corporation (Electro Rent) of Microlease Inc. and Test Equipment Asset Management Limited (Microlease), for a detailed phase 2 investigation. The CMA imposed an interim order on the parties requiring them to maintain and operate the enterprises separately and to seek the consent of the CMA to do or not to do specified activities affecting the enterprises. It also provided for the appointment of a monitoring trustee to monitor compliance with the interim order. The CMA concluded the merger investigation in May 2018, finding that the merger may result in a substantial lessening of competition. In July 2018 the CMA accepted final undertakings requiring the parties to divest Electro Rent UK to a suitable purchaser.

Breach of the interim order – the CMA's penalty notice

In March 2018 Electro Rent served a break notice on the lease of its UK premises. Before doing so it informed the monitoring trustee and, following a brief discussion, the monitoring trustee indicated "that seemed fine". Neither Electro Rent nor the monitoring trustee informed or sought the CMA's consent before serving the notice.

In June 2018 the CMA issued a decision finding that Electro Rent had failed to comply with the interim order, imposing a fine of £100,000, the first fine imposed to date by the CMA for breach of an interim order. The CMA considered that serving the break notice did constitute pre-emptive action which made it harder to take remedial action and was therefore in breach of the interim order. It resulted in Electro Rent UK not having the resources for development of its UK business on the basis of its pre-merger plans, which included having premises in the UK from which to operate.

The CMA concluded that Electro Rent did not have a reasonable excuse for its failure to comply with the interim order. The terms of the order made it clear that Electro Rent was required to seek prior consent from the CMA, not from the monitoring trustee, before engaging in conduct outside the ordinary course of business, such as issuing the break notice. The monitoring trustee does not have delegated authority (either express or implied) to give consent on behalf of the CMA to any action not in compliance with the interim order.

The fact that Electro Rent had raised the issue with the monitoring trustee indicates that it was aware that this was a matter that may have raised concerns with the CMA. Electro Rent should therefore have known that it should have obtained the CMA's consent, just as it had done on previous occasions before engaging in conduct that was potentially in breach of the order. Arguments as to whether or not Electro Rent had a reasonable commercial rationale for wanting to issue the break notice are not relevant to whether it had a reasonable excuse for failing to comply with the interim order.

When setting the level of the penalty the CMA took into account a range of factors such as the significance of the breach, the need to act as a specific and general deterrent, the role of the monitoring trustee and the financial position of Electro Rent.

The CAT's ruling

Electro Rent appealed the CMA's decision before the CAT, claiming that the CMA had been wrong to conclude that it did not have a reasonable excuse for the breach of the interim order and that the level of the fine imposed by the CMA was excessive. Electro Rent argued that:

  • It had followed the correct procedure for dealing with the uncertainty as to whether or not serving the break notice was in breach of the order by raising the matter with the monitoring trustee and acting consistently with the advice received;
  • There were good reasons for the monitoring trustee and Electro Rent to conclude that service of the notice would not breach the order as it did not adversely affect the ability for Electro Rent UK's business to compete effectively;
  • The penalty imposed by the CMA was excessive: the conduct had no adverse effects on the merger investigation or any remedies, the breach was not significant or flagrant, Electro Rent should be judged on the basis of its honest beliefs and there was no need for the penalty to be fixed at a level to ensure specific and general deterrence.

The CAT dismissed the appeal in its entirety.

Good reasons for concluding no breach

On the issue of whether a reasonable person would have believed that service of the break notice would not be in breach the interim order, the CAT focused on the requirement in the interim order to maintain all assets and not dispose of any of them, except in the ordinary course of business for the separate operation of the two businesses. The "ordinary course of business" was for this purpose defined as "the day-to-day supply of goods and/or services" and does not include matters involving significant changes to the organisational structure or related to the post-merger integration.

The CAT did not consider that issuing a break notice could ever be "in the ordinary course of business" and concluded that a reasonable person would not have decided to serve the notice without first having consulted the CMA, or at least having obtained advice from the company's legal advisers. Whether or not terminating the lease made commercial sense for the company was irrelevant and it was also not for Electro Rent to decide whether this would subsequently facilitate a divestment.

Proper procedure

The CAT rejected the proposition that the monitoring trustee had been properly briefed by Electro Rent on the issue. Contact with the monitoring trustee consisted of a brief telephone call while he was in China on other business and some of the key information passed on, such as the fact that it was possible for Electro Rent to unilaterally reverse the break notice, had been incorrect.

Even if Electro Rent had properly briefed the monitoring trustee, the requirement to keep the monitoring trustee fully informed is intended to promote transparency on the part of Electro Rent in order to enable the trustee to better understand any actual or potential compliance issues and enable him to perform his role on an informed basis. Disclosure to the monitoring trustee, even if adequate, does not remove the need to seek the consent of the CMA.

Level of the penalty

The CAT concluded that the breach in this case was both significant and flagrant. It undermined the integrity of the divestment package and was committed by the CEO of a well-resourced company with access to legal advice. The CAT agreed with the CMA that the penalty should be set at a level that would bring home to Electro Rent and to other parties in a merger investigation the importance of interim orders being scrupulously complied with.


The fine imposed on Electro Rent was the first fine imposed by the CMA for breach of an interim order under the UK merger control regime. Over the following months the CMA imposed two further fines, one on Ausurus and another fine on Electro Rent, and it has indicated that there are other cases in the pipeline. We have seen a similar focus on gun jumping infringements by other competition authorities around the world. In May 2018 the EU Commission imposed a fine of €124.5 million on Altice for gun jumping under the EUMR (see our briefing here) and a further case on gun-jumping, in Canon/Toshiba, is pending. In Australia the ACCC has also very recently for the first time taken enforcement action for gun jumping (see our briefing here).

These recent developments send a clear warning to companies involved in M&A that any standstill obligations imposed under the relevant merger control regimes must be respected and that pending receipt of merger clearance companies must continue to act independently on the market and should limit any cooperation between them to permissible integration planning. The distinction between early implementation and permitted transition planning will not always be easy and will depend on the facts and circumstances of each individual transaction. It is therefore important to have clear and practical guidance in place, with appropriate on-going legal oversight, on what is and is not permissible pending a clearance decision. 

Key contacts

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Stephen Wisking

Partner, London

Stephen Wisking
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Veronica Roberts

Partner, UK Regional Head of Practice, Competition, Regulation and Trade, London

Veronica Roberts
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Kyriakos Fountoukakos

Managing Partner, Competition Regulation and Trade, Brussels

Kyriakos Fountoukakos
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Kristien Geeurickx

Professional Support Consultant, London

Kristien Geeurickx
London Competition, Regulation and Trade Stephen Wisking Veronica Roberts Kyriakos Fountoukakos Kristien Geeurickx