CAT gets its claws out

The Office of Fair Trading (OFT) will be licking its wounds after a bruising experience in the Competition Appeal Tribunal (CAT) over its decision to fine tobacco manufacturers and retailers more than £200m for price fixing (12 December 2011).

This was intended to be the case that restored the OFT’s reputation following setbacks in retail cases involving milk and groceries as well as an 89 per cent reduction in fines on construction businesses (21 March 2011).

Instead, the record fines totalling £225m imposed by the OFT last year on tobacco-related businesses following a seven-year inquiry were quashed after the Government body failed to submit evidence to the court that would support its case.

In its judgment on Monday the tribunal, chaired by head of the CAT Vivien Rose, said there was “no sworn evidence” from any witnesses that the retailers and tobacco companies entered into an alleged price-fixing agreement.

The ruling came early, reflecting the fact that something had gone drastically wrong with the defence. The trial had originally been listed until 21 December and a ruling was not expected until 2012 but the OFT gave up the game at the halfway point.

The fines came in 2008, five years after the investigation was launched. Sainsburys, which had blown the whistle on the alleged price fixing, had not been fined while Tesco and Somerfield both agreed to a leniency fine, meaning they were not involved in the appeal.

Those retailers that agreed to a settlement will now be looking for some method of redress because the basis on which they settled failed, in effect, to exist.

Part way through the trial the OFT had been forced to abandon certain aspects of its original case, leaving the appellants to ponder what case there was to answer.

Brick Court’s Mark Howard QC, appearing for Imperial Tobacco, was highly critical of the OFT’s “so-called refined case”, telling the court that the “central plank” was the OFT’s case was “gone”.

Blackstone Chambers’ Pushpinder Saini QC, appearing for Safeway and Morrisons, also piled on the pressure stating that the court was now in “Alice in Wonderland world” where the OFT had sought to change its stated case against the appellants without being transparent about it.

The witness provided to the court by the OFT, Ms Bayley, had not been asked to review her witness statement since she first provided it in 2005. The tribunal said had her evidence been tested “more stringently”, 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 and Imperial worked did not appear to be consistent with the OFT’s findings in the decision [to fine]”.

The refined case was rejected and the OFT believed it did not have jurisdiction to come to its own decision on the legality of the conduct by the appellants.

The OFT, represented by Monckton Chambers’ Paul Lasok QC, said it was important to “investigate fully concerns around the pricing practices of the parties in this case and to make a decision about them”. The outcome of the case, it added, was “disappointing”.

There now need to be some soul searching at the Government body. It is only right that there is a body to police price-fixing allegations, but is it right that that body is judge and jury in such cases?

What is need is a new layer of objectivity, one which could save some costly battles in the future.