Can the NewsCorp-BSkyB deal be stopped?

by Carl Gardner on July 6, 2011

A lot of people must be wondering this, given recent allegations and revelations about phone hacking by the News of the World. So can the Culture Secretary Jeremy Hunt now block the planned merger of News Corporation and BSkyB?

He has already said he is minded to allow it, subject to certain undertakings relating in particular to the independence of Sky News, undertakings on which he is consulting the public. We have till this Friday, 8 July, to respond.

The process was initiated by Vince Cable, who issued a European Intervention Notice last November under the Enterprise Act 2002, citing concerns about media plurality and requiring the OFT and Ofcom to report, which they have done. Their view is that the undertakings News Corporation will agree to are practical and viable, and address the concerns about media plurality.

In my view it’s not legally defensible now for Hunt to slam the brakes on this process, let alone put it into reverse. Crucially, the legislation governing the procedure – article 5 of the Enterprise Act 2002 (protection of Legitimate Interests) order 2003 – requires him when deciding now whether to refer the matter to the Competition Commission to take account only of the public interest consideration mentioned in the original European Intervention Notice – the plurality of media ownership. Given his previous indication that he was minded to accept undertakings, and given the Ofcom/OFT advice, in my view a court on judicial review would be bound to conclude that a referral now could only be based on new public interest considerations – and would quash the decision to refer.

So are there any alternatives?

Well, he can’t issue another European Intervention Notice, because of section 67(5) of the Enterprise Act 2002. A pity, that; that principle was no doubt included so as to stop government intervening on a merger or takeover repeatedly, simply to frustrate it. It does, though, ignore the possibility of new public interest concerns coming to light.

Parliament could of course repeal section 67(5), or amend it to permit a second reference where new concerns arise. Interestingly, a new notice could mention public interest concerns not currently laid down in the relevant legislation: section 42(3) makes clear that the concept of a public interest consideration means

a consideration which, at the time of the giving of the intervention notice concerned, is specified in section 58 or is not so specified but, in the opinion of the Secretary of State, ought to be so specified.

The government would then have to seek the approval of the European Commission under article 21.4 of the EU Merger Regulation for “recognition” in principle of its new public interest concern. But that would mean giving the European Commission the final word over whether the government could intervene again; not an attractive approach for any British government. I don’t think ministers will be seriously considering this as a way forward in this case.

What we’re left with is Ofcom’s power to take steps against the holder of a TV broadcasting licence under either of the Broadcasting Acts 1990 and 1996 – as a ditigal terrestrial, satellite and I think cable broadcaster, I imagine BSkyB hold both types of licence (both a TLCS and DTPS licence).

Both section 5(5) of the 1990 Act and the parallel section 5(5) of the 1996 Act permit Ofcom to revoke a licence (or, more strictly, to include provisions in a licence providing for revocation: I assume they’ve done this). Revocation procedures can be initiated where a relevant change has occurred following grant of a licence – and such a change can include a change in the persons having an interest in the licence-holder that would call into question whether it remains a fit and proper person to hold a licence.

There must be some doubt, though, whether a regulator can properly revoke a licence on the basis that the licence holder (in this case, presumably BSkyB Group or one or more of its subsidiaries) is no longer a fit and proper person because it’s now controlled by another company (News Corporation), another of whose subsidiaries (News Group Newspapers) is suspected of presiding over illegality and a cover-up. If Ofcom were challenged on this, I think a judicial review might well succeed on the grounds that there’s no rational connection between the conduct of a newspaper firm and the likely conduct of a broadcaster. It might depend whether senior managers of News Corporation itself can be linked to the phone hacking scandal or cover-up. But I’d be surprised – unless even more explosive evidence emerges linking phone hacking to the very centre of the Murdoch empire – if an independent regulator were bold enough to take action.

What all this shows is that the legislation in its current state does not satisfactorily address legitimate public interest concerns about the toxic mix of media concentration and impropriety.

Parliament should now consider amending section 67 of the Enterprise Act to permit a second European Intervention Notice where new public interest concerns emerge following an initial intervention, or allowing an existing notice to be amended; and the government should seek recognition from the European Commission of a new ground of public interest consideration, where a merger involves a company which is (or one of whose subsidiaries or related companies’ staff is) linked to suspicions of serious or systematic illegality. It can then make an order under section 58(3) of the Enterprise Act to give statutory force to that new consideration. Parliament should also consider amending the Broadcasting Acts to permit the Secretary of State to “call in” a decision on whether a licence-holder remains a fit and proper person to hold a licence – or at least to direct Ofcom to make a formal investigation and decision on fitness – where related companies of those taking controlling interests in licence-holders are linked to serious or systematic illegality. In that way, political will can be brought to bear directly on the regulatory process in cases like this.

{ 14 comments… read them below or add one }

1 simplywondered July 6, 2011 at 22:37

he could of course just let them get on with on the basis that they are his paymasters, probably have plenty of dirt on him and hey we’re tories anyway and this is the free market. and the country is so far down the poop shoot, does it actually matter?
anyway, murdoch has put rebekah (hate that spelling more than anything else about her) wade/brooks in charge of cleaning the augean stables. makes you wonder how much shite coulson has on cameron et al as his insurance policy.
and of course lest anyone should think that rebekah and charlie brooks are chums of the pm, we were today told he hasn’t seen her since christmas. wonder what he gave her?

2 ObiterJ July 7, 2011 at 10:50

Many thanks for this excellent post highlighting the legal issues involved.

I suspect that Jeremy Hunt was rather hasty in saying that he was “minded” to allow the takeover.

As always, complex company structures are allowed to hid an essential reality. The merger will concentrate far too much media power ultimately in the hands of one dominant individual.

3 Richard Thomas July 7, 2011 at 10:53

No doubt this is grossly irresponsible but not being a lawyer I can say that I’d rule out News Corporation’s bid for BSKYB on the grounds that the business ethos displayed by the News of the World was directed from within the Company and as such its management are not a fit and proper persons to hold a broadcasting licence. I’d then wait to be sued by News Corp and let the fun begin

4 botzarelli July 7, 2011 at 11:17

Thanks for the excellent summary – saved me from digging out my dog eared copy of the Enterprise Act.

I’m not sure that it would be particularly attractive to invite litigation which HMG would be likely to lose leading to the Courts making the ultimate decision in a couple of years time. It is also likely to be anathema to the civil servants advising Jeremy Hunt – on day one of my time in the Government Legal Service (in the Competition Law branch at the then DTI) it was emphasised that the first priority in advising Ministers was to avoid the possibility of legal action being taken against HMG if at all possible. Unless there’s been a radical change in culture (which is certainly not something that has been apparent when working over the past 15 years on the other side of the fence and trying to get government lawyers and civil servants to take a robust view of litigation risk!) it is hard to visualise such an advice ever making it to Hunt’s desk other than as an option to be resisted.

The problem with taking the legislative amendment route is that it runs the risk of shutting the stable door after the horse has bolted. There’s also a serious risk that drafting the concept of fit and proper person to include imputed knowledge and acquiescence of improprieties all the management of all the members of a group would make the process very unwieldy and expose otherwise unobjectionable transactions to potential legal challenge.

An important feature (as per Peter Oborne’s excellent Spectator article and the ICO data he cites there) is that it is not just NI which has been involved in hacking and other morally and legally dubious practices. Putting too much new weight on the fit and proper person test or having it be subject to regular review could have the effect of breaking up all of the existing media groups. Should Ofcom really be entrusted with making the judgment call that it is OK for gmg to continue to be funded by the Scott Trust because it only did dodgy things to expose important truths, but that other forms of journalism are less important or valid?

Although the alleged hacks (etc) are horrific, perhaps there is some validity in the Toby Young/fleetstreetfox position that the individuals should be prosecuted but that the papers should remain free to make the call (eg what if you knew that there were voicemails sitting in Rebekah Brooks or Rupert Murdoch’s phones that would incontrovertibly implicate them in the Milly Dowler hacks – would it be wrong to hack into them to expose this?).

5 Carl Gardner July 7, 2011 at 18:35

But how could you know, botzarelli? You couldn’t, and nor could the News of the World have known it would find any serious wrongdoing. All it was doing was fishing for gossip. But anyway, I think the answer must be that it would be wrong to hack, because illegal. It’s the police who should have powers to invade privacy where they have good reason to think they’ll find evidence of illegality. Anyone doing this without legal power to do so is putting themselves above the law – exactly the arrogance that seems to have been at the heart of the tabloid culture.

I agree with you about Hunt not wanting to stop the merger. I wouldn’t, myself, advise new government lawyers to approach their jobs in that way – it seems to me to be for ministers to decide how much legal risk they want to take, not for government lawyers to narrow their options by being excessively risk-averse. But again, you’re right that that sort of thinking is quite common in the GLS.

6 txwikinger July 7, 2011 at 19:00

This is an interesting topic, not only on the legal issues, but because too many other issues are interwoven.

It is interesting that on the North American continent, this whole story has a far more political perspective. All media and blogging groups that despise R. Murdoch and in particular his Fox News Channel in the USA because of the conservative perspective about the political reporting are reveling in the issues caused by NOTW and claim moral turpitude (regardless of lots of US tabloids having a similar business model, hence more based on leaking than hacking, but who knows).

Maybe the question that should be asked here is not the one if NI has the moral authority to be certified by OFCom as a broadcaster, but rather a question of the risks that media is a small oligarchy. Is the diversity of opinions really served by those multi-national conglomerates?

Fortunately, broadcast is more and more disappearing for multi-cast and interactive demand via the Internet. Hence, platforms like BSkyB are losing over time in relevance. Maybe there is too much excitement over a disappearing issue. In fact, I find more good opinions in blogs like this one, that I ever find in the “official” media.

7 Scott July 8, 2011 at 00:47

Well put Carl. The law unfortunately makes it just about impossible to scupper bskyb deal.

8 Carl Gardner July 8, 2011 at 01:13

I think so, Scott. I’ll be truly gobsmacked if it doesn’t happen.

Thanks, txwikinger!

9 Andy July 10, 2011 at 15:53

“It might depend whether senior managers of News Corporation itself can be linked to the phone hacking scandal or cover-up. But I’d be surprised – unless even more explosive evidence emerges linking phone hacking to the very centre of the Murdoch empire – if an independent regulator were bold enough to take action.”

This bit may come in to play – Peston is reporting e mails confirming corruption came to light in 2007 http://www.bbc.co.uk/news/business-14099102

It’s the cover up which always gets ya!

10 Kelvyn Gardner July 11, 2011 at 11:23

Given Murdoch’s mastery of the ‘long game’ a fix should come up before long. Whether or not Ofcom can put a legislative spanner in this work, there should be enough contact between the government and NI to ‘suggest’ that they quietly stop persuing BskyB for the time being. NI is unlikely to make a song-and-dance of dropping their interest, as this may imply some acceptance of corporate responsibility for the hacking. However, it could be left to languish and, indeed, even the spineless Jeremy Hunt has found the wit to use his 150,000-strong comment file as an obvious reason to consult further.

11 Carl Gardner July 11, 2011 at 18:20

Good call, Kelvyn. The fix has now come up, of course.

12 Anonymous July 12, 2011 at 00:40

“The law unfortunately makes it just about impossible to scupper bskyb deal.”

So the law serves big business, not democracy, because it provides no mechanism by which the people can assert their sovereignty.

Meanwhile, Murdoch’s power is enhanced by a begging government saying ‘please sir, would you mind removing your bid because we are powerless to do so…’

‘…or at least amending your proposition so that we can find a legitimate reason to delay it until we can induce the public to go back to sleep’.

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