Cartel Regulation In The United Kingdom

An extract from The 2009 European Antitrust Review - a

Global Competition Review special report - www.globalcompetitionreview.com

Cartel Regulation In The UK: The Two-Pronged Approach

Cartel regulation in the UK operates on two levels, with the

possibility of civil proceedings against companies and criminal

prosecutions against individuals. Full immunity from both types of

enforcement action is potentially available under the OFT's

leniency policy (for companies) and no-action policy (for

individuals), and both companies and individuals are actively

encouraged by the OFT to contact the OFT if they suspect cartel

activity.1 If found guilty of an infringement, companies

face large fines and employees can face prison sentences, with

directors also subject to the possibility of being disqualified as

a director for up to 15 years.

Companies: Civil Cartel Investigations And Sanctions

Companies that enter into agreements or otherwise collude by way

of a concerted practice to fix prices, limit or restrict

production, share markets or 'rig' bids, will almost

certainly infringe section 2(1) of the UK Competition Act 1998 (the

chapter I prohibition) and, where the conduct affects trade between

EU member states, article 81(1) of the EC Treaty. Such

'hard-core' cartel conduct is unlikely to benefit from any

exemption from the competition rules.2 Companies found

guilty of infringing competition laws face fines of up to 10 per

cent of their worldwide turnover.3

Under the powers contained in the Competition Act, if the OFT

has reasonable grounds for suspecting that UK or EC competition

laws have been infringed, it may:4

order the production of specific documents or information

relevant to the investigation and take copies thereof (including

documents stored in electronic form);

carry out an unannounced 'dawn raid' on business

premises with or without a warrant (although the OFT will only have

the power actively to search premises and take original documents

if a warrant is obtained and produced at the beginning of the dawn

raid);

carry out a dawn raid with a warrant on private premises (eg, a

director's home or car) including the power to search such

premises;

in the case of a dawn raid carried out with a warrant, retain

original documents for up to three months and investigators may

take any other steps necessary to preserve the existence of

documents; and

require an explanation of documents or information supplied or

an explanation as to where a document might be found if it cannot

be produced.

The OFT has two additional powers when conducting civil cartel

investigations under the Competition Act or the EC Treaty: the

power to obtain information by way of 'directed

surveillance';5 and the power to obtain information

through 'informants' (so-called 'covert human

intelligence sources' or 'CHISes').6

However, if the OFT carries out a dawn raid acting jointly with the

European Commission under the European Commission's enforcement

powers, the OFT will not have powers to take original documents or

to authorise surveillance, as it will only have the same powers as

the European Commission as set out in article 20 of Regulation

1/2003.7

Individuals who fail to cooperate with an OFT investigation by

not complying with a request, intentionally obstructing an

inspection, destroying or falsifying evidence, or providing false

or misleading evidence can face criminal sanctions, including

imprisonment.

Recent Developments In Civil Cartel Enforcement

There have been no final cartel decisions issued by the OFT

since the Independent Schools decision in November 2006,

although there have been significant developments in four large

cases in key sectors of the economy, namely Construction,

Passenger Airline Fuel Surcharges, Dairy

Retailing and Tobacco products. It is of note that in

each of these cases the OFT has offered the parties a form of early

resolution (see further below).

In August 2007, the OFT announced that British Airways had

admitted colluding with Virgin Atlantic over the price of long-haul

passenger fuel surcharges and agreed to pay a penalty of

£121.5 million.8 This penalty is by far the

highest imposed by the OFT on a company for an infringement of

competition law to date. As part of an early resolution agreement

with the OFT, British Airways has admitted to colluding with Virgin

Atlantic over the surcharges, which were added to ticket prices in

response to rising oil prices between August 2004 and January 2006.

Virgin Atlantic reported the cartel conduct to the OFT under the

OFT's leniency policy and qualified for immunity from fines

under the OFT's policy. British Airways subsequently cooperated

fully with the OFT's investigation and obtained a significant

reduction in penalty as a result. The OFT's investigation was

conducted in parallel with a separate US investigation and the two

agencies consulted each other throughout. The final infringement

decision is awaited but may not be issued until certain parallel

criminal prosecutions in relation to this case have concluded (see

below).

In April 2008, the OFT issued a statement of objections against

112 construction companies in its wide-ranging investigation into

bid-rigging activities in the construction industry in

England.9 The OFT's investigation is focused on 240

instances of alleged bidrigging. The OFT received 37 leniency

applications and all other parties received an offer of reduced

financial penalties under a fast-track procedure that is aimed at

speeding up the OFT's case.

In September 2007, the OFT announced that it had issued a

statement of objections to five large supermarkets (Asda,

Morrisons, Safeway, Sainsbury's and Tesco) and certain dairy

processors (Arla, Dairy Crest, Lactalis McLelland, The Cheese

Company and Wiseman).10 The OFT alleges that these

companies colluded on the retail prices of certain dairy

products.11 The companies are alleged to have shared

commercially sensitive information in 2002, and in some cases 2003.

In December 2007, the OFT announced that it had reached 'early

resolution' agreements with Asda, Dairy Crest, Safeway,

Sainsbury's, The Cheese Company and Wiseman based upon the

OFT's provisional findings in the statement of objections. A

further early resolution agreement with Lactalis McLelland was

later entered into in February 2008.12 The parties have

each admitted liability in principle and will pay penalties

amounting to a maximum of over £120 million. The OFT is

continuing with its case against Morrisons and Tesco, who will have

an opportunity to make representations on the statement of

objections. A final decision is expected sometime in 2009.

Finally, in July 2008 the OFT announced that it had reached

early resolution agreements with six companies who have admitted to

engaging in unlawful practices in relation to the retail price for

tobacco products in the UK.13 The announcement follows

the issue of a statement of objections in April 2008 against

certain tobacco manufacturers and retailers.14 The OFT

has stated that each of the parties who have entered into early

resolution agreements will receive 'a significant

reduction' in financial penalty, providing full cooperation is

maintained. It is understood that certain of the parties may also

benefit under the leniency programme. If all discounts are given

the total fines that would have been imposed will be reduced from

£173.3 million to £132.3 million. The case against

certain other companies in this case is continuing.

Early Resolution Agreements And Settlements In Civil Cartel

Cases

As indicated above, there is growing consensus that an ability

to resolve cases without the need to complete a full administrative

procedure, but while still leading to an infringement decision can

be of benefit to both competition authorities and undertakings.

Unlike the European Commission which has published a notice setting

out its approach to settlements before settling cartel cases in

practice, the OFT has been developing its approach to what it calls

'early resolution' agreements through case experience (ie,

cases such as Independent Schools, Passenger Airline

Fuel Surcharges, Construction, Dairy

Retailing and Tobacco products). A key principle

underlying early resolution is that an agreement is reached between

the OFT and one or more of the parties to the investigation whereby

a reduced penalty is imposed in return for specific admissions of

liability and other types of cooperation, such as for example

limiting the company's requests for access to the OFT's

file and its representations in response to the statement of

objections.

Private Damages Actions In Cartel Cases

As is the case for many other European competition authorities,

the OFT is continuing to develop its thinking in the field of

private damages actions in competition law cases. In November 2007,

the OFT published recommendations to the government to improve the

effectiveness of redress for consumers and businesses that have

suffered loss as a result of breaches of competition

law.15 The OFT recommends that the government consult on

a number of proposed measures to make private actions in

competition law effective, including:

allowing representative bodies to bring actions on behalf of

consumers and businesses, irrespective of whether a competition

authority has previously taken public enforcement action;

allowing representative actions to be brought on behalf of

consumers and businesses 'at large' (ie, on behalf of all

individuals in an identified class, other than those who expressly

opt out); and

safeguarding the effectiveness of the leniency regime for

cartel investigations by excluding the use in private actions of

certain documents provided by whistleblowers and limiting their

liability in certain cases.

The recommendations are being considered by the Department for

Business Enterprise and Regulatory Reform.

In March 2007, UK consumer association Which? commenced the

first ever 'representative action' in a...