Takeover of HBOS survives competition challenge

Acting under Scots law and jurisdiction, the Competition Appeal Tribunal ruled on 10 December 2008 that the Government’s decision not to refer the takeover of HBOS by Lloyds TSB was a lawful one

The takeover was rushed through after the credit crunch threatened to overwhelm HBOS completely in September and October 2008.  Despite concerns expressed by the Office of Fair Trading that the merger would create a huge concentration in the personal account and mortgage market, the Government decided not to refer it to the Competition Commission.  In addition there was the concern that both of the banks also received massive injections of public money early in October, effectively nationalising them (and the Royal Bank of Scotland, which also received public money at the same time). 

The Merger Action Group (MAG), which consisted of HBOS customers, shareholders and businessmen challenged the legality of the Government’s decision to bypass the Competition Commission, but announced after publication of the Tribunal decision and the Tribunal’s refusal of leave to appeal to the Court of Session, that it would be taking the matter no further.

The challenge was mainly based on certain statements attributed to the Prime Minister and the Chancellor of the Exchequer which had allegedly fettered the exercise of the Secretary of State’s discretion to refer the Merger to the Competition Commission.  The Tribunal held that while it was clear that the Government was in favour of the merger and had committed itself to making legislative changes to enable the Secretary of State to intervene in respect of the merger, the applicants had not shown that the Secretary of State had failed to exercise his discretion independently. The Tribunal held that the unchallenged evidence of the Secretary of State clearly showed that he had met officials to discuss the advice and submissions received and, having satisfied himself that all the evidence and options had been fully examined, he reached his decision. The Tribunal also referred to a statement by the Secretary of State to the House of Lords. The statement indicated that the Secretary of State would ensure that he received all available advice and views before reaching his decision and that he had an “open mind” to both competition and public interest considerations. 

HBOS shareholders voted to approve the takeover on 12 December, bringing to an end any sort of independent existence for what had once been the proud Bank of Scotland, founded in 1695.  It seems certain that one result will be the closure of HBOS branches and the loss of large numbers of banking sector jobs in Scotland, as well of course as the end of any head office functions that HBOS may have retained in the country.  About the only news of any comfort coming out of all this was the appointment of Susan Rice as chief executive of the newly merged bank in its Scottish territory.  She has an excellent track record in her post at the head of the Lloyds TSB operation in Scotland.

A postscript: Scots Law News began to wonder whether something was rotten in the state of HBOS when in 2007, without prior warning, its Visa credit cards from the bank became Mastercards.  On 21 October 2008 our distinguished banking correspondent, Professor Kenneth Reid CBE (Robert Peston, eat your heart out), wrote to us as follows: "The Bank of Scotland is in the process of switiching all its credit card holders from Visa to Mastercard. I have just received my new Mastercard, together with a Credit Card Agreement. Cluase 17.5 states that "Nobody other than we or you can enforce any part of this agreement, under the Contracts (Rights of Third Parties) Act 1999. The very next provision – cl 17.6 – then adds, reassuringly: "This agreement is governed by Scottish law".  For those benighted readers who don't quite get the point, let us refer you to MacQueen & Thomson, Contract Law in Scotland (2nd edition, 2007), paras 2.69-2.83, especially at para 2.75.