Cartel Regulation In The United Kingdom

An extract from The European Antitrust Review 2008, a Global Competition Review special report - www.GlobalCompetitionReview.com.

OFT reorganisation completed

Since the arrival of Philip Collins as chairman and John Fingleton as chief executive of the Office of Fair Trading (the OFT) in October 2005, one of their priorities had been the internal reorganisation of the OFT to allow for a better integration of its consumer and competition law functions, as well as to enable the OFT to take a more 'holistic approach' to analysing markets and deciding on appropriate interventions. This reorganisation process was completed in October 2006 and as a result much has changed at the OFT. The two notable exceptions from the wide-ranging structural changes at the OFT have been the mergers and cartels branches. The OFT's cartels branch continues to operate as a separate unit and remains responsible for all aspects of the OFT's cartels work, including the investigation of civil and criminal cartel allegations as well as the operation of the OFT's civil leniency and criminal immunity (or no-action) policies. One thing that has changed for the OFT's cartels branch is that it is, along with every other part of the OFT, now subject to the OFT's new and developing case prioritisation criteria, which aim to ensure that the OFT's case load as a whole reflects the OFT's priorities from time to time. However, given that cartel cases have been and continue to be a top enforcement priority for the OFT, it is reasonable to expect that all serious allegations of cartel conduct will continue to be investigated and pursued by the OFT.

Civil cartel case developments

Over the past year (ie, since August 2006), the OFT has issued only one cartel decision, the Independent Schools decision. The case concerned the sharing of information between 50 fee-paying independent schools about intended fee increases. The case was settled by the OFT by way of an innovative procedure under which the implicated schools accepted liability and agreed both to pay a nominal fine of 10,000 each and to make ex gratia payments into a charitable trust for the benefit of the pupils who attended the implicated schools during the period of the infringement. The OFT issued the final infringement decision in this case in November 2006. Further, the OFT recently confirmed that during the year ended 31 March 2007, the OFT visited 14 business premises using its formal inspection powers under section 27 of the Competition Act, ie, without search warrants (11 visits) and under section 28 of the Competition Act, ie, with search warrants (three visits) in relation to five separate investigations.

Sean Williams, the new executive director for markets and projects at the OFT indicated, however, in a speech in July 20071 that he was expecting the OFT to issue "some big decisions" during the course of the next year. There are three significant civil cartel cases that are known to be at an advanced stage. In September 2006, the OFT announced that it had issued a statement of objections to six Scottish dairies. The OFT alleges that these companies were engaged in cartel conduct between 2000 and 2003 in relation to the supply of fresh processed milk to so-called 'middle ground' customers (ie, customers that are neither supermarkets nor individual consumers). On the assumption that the parties' representations do not lead the OFT to abandon or recast the case by way of a supplementary statement of objections, an infringement decision can be expected later this year in this case. Then there is the OFT's civil 'airline passenger fuel surcharge' case (which runs in parallel to an OFT criminal investigation of certain implicated individuals) into allegations of price coordination by certain airlines in relation to fuel surcharges for long-haul passenger flights to and from the UK. The OFT's investigation was made public in June 2006 and was confirmed by British Airways at the time.2 In May 2007, British Airways announced that it had set aside 350 million to cover its total liabilities that may arise out of the separate investigations into passenger long-haul surcharges and into certain cargo surcharges (the latter case is being investigated by, among others, the European Commission and the US Department of Justice). Finally, the OFT is continuing its extensive investigation into bid-rigging activities in the construction industry in England. The OFT announced in March 2007 that the OFT had so far inspected the business premises of 57 construction companies in this case and that 37 companies had applied for leniency.3 As a result of the investigation, the OFT said it had uncovered evidence of bid-rigging in thousands of tenders with a combined estimated value approaching 3 billion.4 In the context of this investigation, the OFT made its first-ever use of its forensic IT evidence gathering skills.5 The OFT further stated that normal leniency applications will no longer be considered in this case, but that it had offered a novel 'fast track' procedure to implicated companies under which companies can obtain a reduced financial penalty in return for specific admissions. This demonstrates the continued willingness of the OFT to develop innovative procedures to deal with exceptional cases (eg, the Independent Schools settlement) or otherwise unusual investigations. All three investigations may ultimately lead to infringement decisions with very significant fines in due course.

Criminal 'cartel offence' developments

The Enterprise Act 2002 introduced with effect from 20 June 2003 a new criminal offence known as the 'cartel offence' in the UK.6 The question of whether price fixing conduct both pre- and post-June 2003 can also be said to amount to a criminal offence under the common law provisions of conspiracy to defraud currently remains the subject of judicial consideration in the ongoing Ian Norris extradition case7 and the SFO's generic pharmaceuticals price fixing case.8 In a speech in July 2007,9 Sean Williams confirmed that the OFT is currently pursuing three separate criminal cartel investigations in the UK (two of these are discussed below, the nature of the third investigation is not yet in the public domain).10 Further, the OFT recently confirmed that during the year ended 31 Match 2007, it visited four business premises under criminal search warrants obtained under section 194 of the Enterprise Act and issued 14 section 193 notices - one to a business and 13 to individuals - requiring the immediate production of specified documents and the provision of specified information, in relation to two separate cases.

In conjunction with the new statutory cartel offence, the Enterprise Act gave the OFT specific criminal investigative powers. The most high-profile use of its new criminal investigation powers to date was in connection with its continuing investigation of employees of British Airways and possibly other airlines regarding allegations of price coordination by airlines in relation to surcharges on long-haul passenger flights to and from the UK, which went public in June 2006.11 Then, in May 2007, the OFT announced that it had carried out a number of on-site searches using its new criminal search powers under the Enterprise Act 2002 as part of a criminal investigation into suspected cartel conduct in relation to the supply of marine hoses used for oil transfers. In a press notice, the OFT confirmed that one of the premises searched under criminal powers in this case was a private address.12 This marks the first time that the OFT has carried out a search at a private home as part of a cartel investigation.

Increase in internationally coordinated cartel investigations

The OFT's investigations into long-haul passenger surcharges and marine hoses form part of internationally coordinated cartel investigations. Both the long-haul passenger surcharges case and the marine hoses case are being investigated in parallel by the US Department of Justice to the extent that the alleged conduct affected US commerce and consumers. The marine hoses case is also being investigated by the European Commission under EC competition law. On the basis of publicly available information, the marine hoses case would appear to be the first example of a cartel case being investigated both by the European Commission under its civil and administrative powers and by the OFT under its statutory criminal cartel offence powers. In practice, this meant that the OFT had to form two separate case teams, one for the investigation of its criminal case and a separate team to assist the European Commission with its UK searches under the European Commission's civil EU search powers. It appears that these two separate OFT teams then searched the same premises in the UK, each under different search powers. This gives rise to a new degree of complexity for targets of such parallel investigations and their advisers. It also highlights the importance of considering at a very early stage the often diverging interests of the company under investigation and any implicated directors or employees and whether separate legal advice ought to be obtained for the various parties.

Leniency developments

It appears that the leniency policy continues to work well. The OFT recently confirmed that during the year ended 31 March 2007 it had received 19 applications, of which eight related to the OFT's ongoing construction investigation. The remaining 11 applications related to seven separate cases. Further, a significant development over the past year was the publication for consultation of further guidance on general leniency and criminal immunity from prosecution ('no-action') policy issues in November 2006 which developed and updated the OFT's interim guidance note of 2005. The 2006 note (the Draft Final Guidance Note)13 largely confirms the provisions contained in the 2005 interim note but offers further clarifications on...