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19 May 2014
On Saturday 1 May, we woke up to a larger EU and new opportunities brought by the 10 new member states. That date also saw the dawn of a new era in the enforcement of competition law. Many businesses seem inadequately prepared.
Addleshaw Goddard conducted a survey among the FTSE 350 during April and was surprised to find that some of the UK’s leading companies have either taken no action or are still rolling out the training programmes and procedures to reduce and manage competition law risks. This comes after 12 months of intense activity by the Office of Fair Trading (OFT) and the European Commission, with some very large fines issued and despite the fact that two-thirds of the respondents to the survey had had some contact with the OFT on competition law issues, with one-fifth of respondents having been visited.
In the survey, 60 per cent of respondents said that they understood their legal obligations thoroughly and the remainder of respondents – all company secretaries and heads of legal – stated that they were aware at least in outline of their obligations. Despite this, nearly half have not trained senior staff to avoid problems and more than a third have no procedure for dealing with unannounced visits by the OFT. More than one-fifth of respondents admitted that they had no plans to train staff or implement the recommended policies and 40 per cent are still rolling out their policies.
Competition law has always been at the heart of EU law and there should be no excuse for non-compliance. The basic rules were included in the Treaty of Rome in 1957, and remain in the same form today. Modernisation should encourage businesses. Since 1962, those concerned about their agreements or practices have been able to apply to the European Commission for a ruling as to whether they are permissible or not. That safety net was removed at midnight on 30 April. Instead, companies will have no option but to make up their own minds.
Competition Commissioner Mario Monti says that the changes “will usher in a mature system in which law-abiding companies will be freed from decades-old legal straitjackets and will benefit from less bureaucracy and a more level playing field in the European single market”. But some might be less sure. The opportunity to seek a legally binding view of competition law from the Commission or from the OFT has often been crucial in ensuring that businesses are safe in their commercial activities.
The consequences of getting it wrong are serious. Aside from the possibility that individuals might face jail for dishonest cartel activity, contracts can be unenforceable, companies can be fined up to 10 per cent of their turnover for breach of competition law and the directors who knew or ought to have known about the breach can be disqualified for up to 15 years.
The majority of companies realise that the OFT has been very active in enforcing the rules under the Competition Act 1998. However, planning for dawn raids appears to be partial. More than 80 per cent of respondents said that they would handle a raid with support from their external legal advisers, but a number of them might end up handling the critical first hour or two of the raid alone. The OFT will usually wait 30 minutes to an hour for lawyers to arrive if there is no in-house legal team, but most respondents told us that their external advisers were between 1 and 2 hours’ travelling time away. This is of limited value to companies, and they or their advisers would be well advised to have someone on standby locally to assist.
With the advent of modernisation, many companies will be nervous about the difficult decisions they face and the price to be paid for making the wrong choices. The only sensible advice is to ensure that all business practices comply with competition law from the outset.
This requires commercial staff to have a greater degree of understanding of the issues than seems to be the case.