A matter of fine tuning

While its exact motives are still a mystery, the OFT has shown its flexible side by cutting BA’s fine

Alan Bates
Alan Bates

The OFT’s decision to cut the £121.5m fine agreed in 2007 with British Airways (BA) raises some interesting questions. The fine, cut by more than half to £58.5m, is for BA’s collusion with Virgin Atlantic to fix the levels of fuel surcharges to passengers on long-haul flights. Virgin, which tipped off the OFT, escaped without punishment.

The OFT, having agreed the higher fine with BA under an early resolution agreement, then suspended its civil investigation and brought criminal charges against several former BA executives. The trial collapsed because prosecutors failed to disclose thousands of documents from Virgin’s computers. The OFT then resumed its civil case, issuing a statement of objections in November 2011.

The OFT has not yet published a non-confidential version of its decision so speculation is rife as to what prompted the cut. Its press release states that the fine was reassessed “in light of a number of factors”, including “legal developments regarding penalty-setting for competition law infringements and the fact that the overall value added to the OFT’s investigation by BA’s cooperation was greater than had been anticipated”.

A major factor must surely have been last year’s Competition Appeal Tribunal (CAT) judgments in the construction bidding and recruitment agencies penalty appeals, which saw large reductions in fines. While the CAT’s criticisms of the OFT related to particular aspects of the penalty calculation formula, the judgments also found that the total fines were simply too high and not proportionate for pursuing the twin goals of punishment and deterrence.

It will also be interesting to see how the OFT’s decision defines the ‘relevant market’. The early resolution predated the European Commission’s November 2010 decision fining BA and other airlines for colluding on fuel surcharges for airfreight. The Commission reduced the ‘basic amounts’ of the fines to take account of the fact that revenues from routes between European Economic Area (EEA) and non-EEA countries were for services performed partly outside the EEA.

OFT watchers will also look carefully at giving additional credit for the “value added by BA’s cooperation”. Companies that sign early resolution deals can expect to have to promise to provide the OFT with full cooperation with the investigation. To what extent should they have to stick with the agreed fine, rather than getting an additional discount because their cooperation has turned out to be more useful than foreseen? And should the OFT be able to reduce discounts if the cooperation turns out to be less useful? Notably Virgin kept its full immunity despite the collapse of the criminal trial.

These questions are relevant to the broader policy issue as to whether, and in what circumstances, the OFT should ever revisit fines agreed as part of early resolution deals. It will be interesting to see what justifications the OFT offers in this case. There is still minimal published guidance of the OFT’s approach to early resolution, and greater transparency could be desirable. The OFT’s decision to cut BA’s fine will nevertheless be welcomed by companies’ advisers, demonstrating, as it does, the OFT’s willingness to reconsider its positions following the statement of objections.