Gallaher Group Ltd and Another and Another v Competition and Markets Authority

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeMaster of the Rolls,Lord Justice Longmore,Lord Justice Lloyd Jones
Judgment Date15 Jul 2016
Neutral Citation[2016] EWCA Civ 719
Docket NumberCase No: (1) C1/2015/0906 & (2) C1/2015/0910

[2016] EWCA Civ 719






CO/10469/2012 & CO/10838/2012

Royal Courts of Justice

Strand, London, WC2A 2LL


The Master of the Rolls

Lord Justice Longmore


Lord Justice Lloyd Jones

Case No: (1) C1/2015/0906 & (2) C1/2015/0910

(1) Gallaher Group Limited & Anr
(2) Somerfield Stores Limited & Anr
Competition and Markets Authority

Lord Pannick QC and Hanif Mussa (instructed by Slaughter and May) for the 1 st Appellants

Monica Carss-Frisk QC and Jessica Boyd (instructed by Burges Salmon) for the 2 nd Appellants

Daniel Beard QC, Andrew Henshaw QC and Brendan McGurk (instructed by CMA Litigation Unit) for the Respondent

Hearing dates: 22 & 23/06/2016

Approved Judgment

Master of the Rolls

In March 2003, the Office of Fair Trading ("OFT") started to investigate Gallaher Group Limited and Gallaher Limited ("Gallaher") and Somerfield Stores Limited and Co-operative Group Food Limited ("Somerfield") among others for potential infringements of competition law in relation, in particular, to the retail pricing of certain competing tobacco products ("the Tobacco Investigation"). Save where the context otherwise requires, I shall refer to Gallaher and Somerfield as "the appellants". The appellants were given the opportunity to enter into without prejudice negotiations with the OFT which, if successful, would lead to early resolution agreements ("ERAs"), by which the parties would admit infringements of competition law and promise co-operation in return for reduced penalties. The broad effect of an ERA was that the party concerned would receive a substantial discount in penalty if it admitted the infringement and did not appeal to the Competition Appeal Tribunal ("CAT").


On 28 January 2008, the OFT produced a paper entitled "A Principled Approach to Settlements in Competition Act Cases". The paper sets out 10 principles. The third principle is: "Fairness, transparency and consistency are integral to an effective settlements process". It is explained in these terms:

"16. The overriding principles of fairness, transparency and consistency must always be taken into account. When engaged in settlement discussions, for example, it is important to ensure that the process is consensual and as transparent as possible throughout, in order to avoid any subsequent allegations of undue pressure having being applied to force parties to 'sign up' to settlement.

17. Consistency is a particularly key consideration, given parties' sensitivity to equality of treatment issues. Whether or not the details of an individual case have been made public, particular approaches in one case will inevitably 'leak out' during the settlement process (and be set out in the infringement decision) and inform parties' strategies in others. Consistency of approach (or, alternatively, the formulation of strong arguments to justify taking a different approach in similar circumstances) is therefore vital. In line with [Effective Project Delivery] principles, and in light of the considerable 'knock-on' effects that settlements may have, particularly at this nascent stage in their development, [the OFT's Advisory Policy & International Group] should be involved early when settlements are being considered."


The Tobacco Investigation was conducted under the Competition Act 1998 ("the 1998 Act"). On 24 April 2008, the OFT issued a Statement of Objections ("SO") addressed to thirteen companies including the appellants alleging infringements of competition law. Shortly after issuing the SO, the OFT invited the companies to enter into negotiations with a view to concluding ERAs. The appellants both entered into ERAs. The material terms of each agreement were the same in each case. Clause 7 provided that, if the appellant appealed to the CAT, the OFT reserved the right to make an application to the CAT:

"(a) to increase the penalty imposed on [the company] in relation to the infringements; and

(b) to require [the company] to pay the OFT's full costs of the appeal regardless of the outcome of the appeal."


Gallaher signed its ERA on 2 July 2008. It provided that the penalty payable would be a little over £50 million instead of about £90 million. Somerfield signed its ERA on 10 July 2008. The penalty payable under this agreement was reduced to just under £4 million from a figure about twice that amount. The ERAs were signed by the OFT on 11 July 2008. Six of the companies to which the SO had been addressed entered into ERAs. At about the same time, the OFT gave certain assurances to Martin McColl Retail Group Limited and TM Retail Limited (together "TMR"). This was pursuant to what has been referred to in these proceedings as "the 2008 Decision". TMR was one of the companies to which the SO was addressed. These assurances lie at the heart of this litigation. In short, the OFT told TMR that, if it entered into an ERA, the OFT would pass on to it the benefits of any successful appeal by other companies without requiring TMR itself to appeal. The OFT did not inform any of the other companies of the 2008 Decision or give any of them similar assurances.


A party who entered into an ERA was entitled to exercise its right of appeal against any subsequent infringement decision by the OFT (albeit that it would lose its discount in penalty were it to do so). Neither of the appellants exercised this right.


On 15 April 2010, the OFT issued its decision in respect of the Tobacco Investigation ("the Tobacco Decision"). This made findings of infringement against the appellants as well as against other companies including TMR. An appeal was lodged by some of these companies (but not the appellants). On 12 December 2011, the CAT allowed the appeals. Encouraged by this decision and in reliance on the assurances it had been given in July 2008, TMR (which had not appealed the Tobacco Decision) sought to recover the penalty that it had paid to the OFT.


The evidence of the OFT is that it decided that, in view of the assurances that it had given pursuant to the 2008 Decision, there was a real risk that TMR would be permitted to appeal out of time; and that an appeal would be likely to succeed. Rule 8(1) of the Competition Appeal Tribunal Rules 2003 (S.I. No 1372 of 2003) provides a period of two months for appealing to the CAT. Rule 8(2) provides that this period may not be extended unless the circumstances are "exceptional". The OFT therefore entered into a settlement with TMR which included paying a sum which covered the amount of the penalty previously paid by TMR pursuant to the Tobacco Decision and an amount in respect of interest and costs. The decision to do this ("the 2012 Decision") was announced on the OFT website in the Update published on about 13 August 2012. Once the appellants learned of this fact, they both asked the OFT to withdraw the Tobacco Decision and refund the penalties that had been levied against them.


The OFT refused to accede to these requests. In letters dated 21 September 2012, it wrote:

"Considerations of the various obligations you refer to do not require the OFT to replicate the effect of the assurance given to TM Retail which would undermine the principles of finality and legal certainty.

Indeed, viewing the matter at a general level, it is not in itself unlawfully discriminatory (or contrary to any other of the obligations you refer to) to provide an assurance (of the matter requested by TM Retail) only to a party who expressly requests one.

Furthermore, the assurance given to TM Retail was not a term of TM Retail's ERA at all, nor did the assurance contradict any term of the ERA. Nor did the assurance involve any intention to prefer TM Retail over other addressees of the Decision. Simply, the relevant OFT representatives gave an assurance to TM Retail, in response to a query which TM Retail expressly raised."


It was in these circumstances that the appellants issued proceedings in October 2012 seeking judicial review of the 2008 Decision and the 2012 Decision on the basis that principles of fairness and/or equal treatment required that they should have the same benefits of settlement as were afforded to TMR.


They also sought to appeal against the Tobacco Decision out of time. On 27 March 2013, the CAT ruled that leave to appeal out of time should be granted on the grounds that there were "exceptional circumstances" for doing so.


On 7 April 2014, the Court of Appeal allowed the OFT's appeal against this decision: see [2014] EWCA Civ 400. The leading judgment was given by Vos LJ. In concluding that there were no exceptional circumstances, he placed considerable reliance on the importance of the principle of finality and legal certainty. In holding that this principle carried the day, he noted that the appellants had the fullest opportunity to consider whether or not to appeal. They chose not to appeal with their eyes open.


On 1 April 2014, the functions of the OFT were taken over by the Competition and Markets Authority ("CMA") pursuant to the Enterprise and Regulatory Reform Act 2013. Since most of the material facts occurred before 1 April 2014, I shall refer to the OFT without distinguishing between it and the CMA.


In a judgment in the judicial review proceedings dated 26 January 2015, Collins J found that the appellants had been treated unfairly and unequally as compared with TMR in 2008 and that the refusal to make payment to them in 2012 required objective justification. He rejected each of the main defences raised by the OFT including the principal ground on which it relied for the less favourable treatment, namely that making the payments to the appellants would compromise the principle of finality and legal certainty. But he dismissed the...

To continue reading

Request your trial
4 cases

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT