Analysis: OFT slated over tobacco fines
2 January 2012 | By Katy Dowell
21 December 2012
9 January 2013
7 May 2013
20 May 2013
26 June 2013
After a series of failed appeals, the role of the competition regulator needs redefining
The OFT is in hangover mode after a year blighted by the Competition Appeal Tribunal (CAT). Any hope it had of restoring its reputation faded in December after its price-fixing case against tobacco manufacturers and retailers fell apart.
In March 2011 the Government unveiled plans to merge the Competition Commission and OFT to create the Competition and Markets Authority (CMA) (The Lawyer, 16 March 2011). The consultation closed in June and a working group is currently considering the way forward.
This provides a unique opportunity for the OFT to shake itself down and look at why it has suffered a succession of losses. After all, in the age of austerity spending money on failed cases is unacceptable.
If the appellants in Imperial Tobacco & Ors v OFT (see box, below) choose to pursue an indemnified damages case against the OFT, or those that settled attempt to reopen negotiations, it could cost millions.
The central issue with the OFT’s case was that its defence did not stack up.
Hogan Lovells partner Suyong Kim, who represented appellants Morrisons and Safeway, says the collapse of the case partway through the trial was “pretty dramatic”, adding: “The OFT’s case was factually unfounded and legally flawed.”
According to several sources, the due diligence on the OFT’s single witness, Ms Bayley, was lacking and its case management was haphazard.
Burges Salmon head of competition Laura Claydon says: “There needs to be much tougher scrutiny internally, and at an early stage, of the evidence the OFT seeks to rely upon during its administrative phase, especially witness evidence.”
Critics say the OFT has taken on too many roles. As policer and enforcer of competition legislation it has, in effect, become judge and jury of the competition world.
One competition lawyer says: “What they’re lacking is an objective viewpoint, somebody who isn’t so closely involved with the case.”
The CAT was also critical of the OFT’s witness preparation. According to the judgment, the OFT witness had not been asked to review her witness statement since she first provided it in 2005. The tribunal said that, had her evidence been tested “more stringently”, and had the OFT “updated her witness statement for the purpose of the appeals, it might have become clear sooner that her evidence as to how the agreement between Sainsbury’s and Imperial worked did not appear to be consistent with the OFT’s findings in the decision [to fine]”.
Stevens & Bolton head of competition Gustaf Duhs says it is not the first time the OFT’s witness evidence has been called into question, adding: “The OFT must take these points on board and seek to cut down the length of each investigation in order to improve its efficacy.”
Ashurst competition partner Euan Burrows, who along with competition head Nigel Parr represented Imperial, comments: “The tribunal’s findings, which rejected the OFT’s allegations on the basis of evidence from no fewer than 19 witnesses of fact, provide the clearest possible example of the need for a full merits review for OFT infringement appeals. Judicial review, whether on a full or ordinary basis, provides no substitute for that essential safeguard.”
Burrows is not alone in wanting a new CAT procedure that would allow such long-running cases to be heard expeditiously, with many competition lawyers considering it to be the most pressing matter facing them.
Burrows says the case shows “further support for the argument that a fair and expeditious procedure might be better served if the OFT’s role was redefined to focus upon an investigative and prosecutorial function”.
This year Tesco will appeal the £10.4m fine from the OFT in relation to a ’hub and spoke’ competition infringement in the dairy invest-igation, the OFT’s longest-running Competition Act investigation (see top cases feature, page 30).
Tesco has drafted in Freshfields Bruckhaus Deringer heavyweights Paul Lomas and Deirdre Trapp, who have instructed Blackstone Chambers’ Dinah Rose QC.
Fundamental changes are needed to the OFT’s enforcement strategy. There is a drive at the High Court and Court of Appeal to encourage cases to be heard more speedily by being managed properly. But the CAT can only follow suit if the parties it serves are more efficient, putting the necessary changes into the hands of the OFT.
Imperial Tobacco price-fixing case: the legal line-up
In December the CAT set aside fines totalling more than £200m levied by the OFT against tobacco manufacturers and retailers for alleged antitrust activity (The Lawyer, 12 December).
The ruling is believed to be the largest defeat ever given by the CAT against the Government.
The CAT concluded that the OFT’s decision to fine the companies could no longer stand in light of the detailed factual evidence presented to the CAT in hearings over six weeks in October and November last year.
- Ashurst partner Nigel Parr instructed Brick Court Chambers’ Mark Howard QC and Mark Brealey QC to lead Brick Court’s Tony Singla for Imperial Tobacco Group plc and Imperial Tobacco Ltd.
- Burges Salmon partner Laura Claydon instructed Matrix Chambers’ Rhodri Thompson QC to lead Matrix’s Christopher Brown for the Co-operative Group.
- Hogan Lovells partner Suyong Kim instructed Blackstone Chambers’ Pushpinder Saini QC to lead Monckton Chambers’ Meredith Pickford and Blackstone’s Tristan Jones for Wm Morrison Supermarkets, Safeway Stores and Safeway Ltd.
- Norton Rose partner Mark Jones instructed Brick Court’s James Flynn QC to lead Brick Court’s Robert O’Donoghue for Asda Stores, Asda Group, Wal-Mart Stores (UK) and Broadstreet Great Wilson Europe.
- Baker & McKenzie partner Richard Pike instructed Blackstone’s Dinah Rose QC to lead Blackstone’s Brian Kennelly for Shell UK, Shell UK Oil Products and Shell Holdings (UK).
- OFT general counsel Francis Barr instructed Monckton’s Paul Lasok QC to lead a team of Monckton juniors, which included Elisa Holmes, Rob Williams, Anneliese Blackwood and Ligia Osepciu.
- Addleshaw Goddard partner Adam Aldred instructed Brick Court’s Helen Davies QC to lead for intervenors J Sainsbury plc and Sainsbury’s Supermarkets Ltd.