The Office of Fair Trading v Somerfield Stores Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Lord Justice Vos,Lord Justice Patten,Lord Justice Laws |
| Judgment Date | 07 April 2014 |
| Neutral Citation | [2014] EWCA Civ 400 |
| Docket Number | Case No: C3/2013/1680 |
| Date | 07 April 2014 |
| Court | Court of Appeal (Civil Division) |
[2014] EWCA Civ 400
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE COMPETITION APPEAL TRIBUNAL
Mr Marcus Smith Q.C.
1197/1/1/12 and 1200/1/1/12
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Laws
Lord Justice Patten
and
Lord Justice Vos
Case No: C3/2013/1680
Mr Daniel Beard QC, Mr Andrew Henshaw QC, and Mr Brendan McGurk (instructed by the General Counsel, Office of Fair Trading) for the Appellant, the OFT
Mr Rhodri Thompson QC and Mr Christopher Brown (instructed by Burges Salmon LLP) for Somerfield
Mr Jon Turner QC and Mr Alistair Lindsay (instructed by Slaughter and May) for Gallaher
Hearing dates: 18 th and 19 th March 2014
Introduction
The issue in this case is whether the Competition Appeal Tribunal (Mr Marcus Smith Q.C.) (the "CAT") was right to find that there were "exceptional circumstances" justifying an extension of time for appealing a decision of the Appellant, the Office of Fair Trading (the "OFT").
The Respondents in Case 1197/1/1/12, Somerfield Stores Limited and Co-operative Group Food Limited (which acquired the assets and liabilities of Somerfield Limited) (together the singular "Somerfield"), and the Respondents in Case 1200/1/1/12, Gallaher Group Limited and Gallaher Limited (together the singular "Gallaher") had each entered into early resolution agreements with the OFT in about July 2008 (respectively the "SERA" and the "GERA", and together the "ERAs"). The CAT held, in essence, that the Respondents had a legitimate expectation that the OFT would be able to maintain the theory of harm that it had advanced and that had given rise to the ERAs, and that it would be reflected in the OFT's decision (entitled "Case CE/2596–03: Tobacco" which was issued on 15 th April 2010 – the "Decision") when it was ultimately made. Accordingly, when other third party addressees of the Decision successfully challenged it, and the OFT had to abandon the theory of harm that underlay it, the Respondents were entitled to initiate their own appeal out of time. It is noteworthy that neither Somerfield nor Gallaher seeks to uphold the reasoning of the CAT as to the finding of a formal "legitimate expectation".
The term "theory of harm" has been central to this appeal, and it is worth explaining it briefly at the outset. The OFT's theory of harm is its explanation as to why the agreements that it finds to exist are said to have the anti-competitive objects or effects it alleges are contrary to section 2(1) of the Competition Act 1998 (the "1998 Act").
The OFT is appealing the CAT's ruling dated 27 th March 2013 (the "Ruling") granting an extension of time for the Respondents to appeal the Decision, with permission granted by Lewison LJ on 23 rd July 2013.
The CAT extended the two-month time limit for appealing, which is provided for under rule 8(1) of the Competition Appeal Tribunal Rules 2003 (S.I. No. 1372 of 2003) (the "Rules"), for 28 days from the date of the CAT's ruling. It did so expressly under rule 8(2) of the Rules, which provides that: "the Tribunal may not extend the time limit provided under paragraph (1) unless it is satisfied that the circumstances are exceptional". We were referred to the CAT's case management powers under rule 19 of the Rules, which allow extensions of time whether or not any time limit has expired, but it was not suggested that rule 19 materially affected the operation of rule 8(2) on which this appeal is based.
The OFT contends, in essence, that (a) the finding of "legitimate expectation" was unprincipled and inappropriate, (b) the fact that certain other addressees of the Decision were able to appeal it successfully did not constitute exceptional circumstances, since there must be legal finality and certainty; and (c) the Ruling was irrational, because neither the ERAs nor the subsequent events undermined the Respondents' ability to bring a timely appeal.
The first and main contention in Gallaher's Respondent's Notice is that the OFT misled it. The way in which that allegation has been explained has not been entirely consistent. But Gallaher seems to suggest in particular that it was misled because it was told by the OFT that the Decision included the same theories of harm as had been contained in the GERA, whereas the CAT decided in the appeals against the Decision by third party addressees (" Tobacco I") that the Decision contained only a different theory of harm from that which Gallaher had been prepared to accept in the ERA. I will explain in a moment the precise way in which the OFT's theories of harm have varied as time went on. Gallaher also contend that the description of the theory of harm in the ERA was apt to mislead (these arguments are together referred to as the "apt to mislead argument"). Secondly, Gallaher's Respondent's Notice alleges that the Ruling should be upheld on the basis that it was entitled to assume, in entering into the GERA, that the OFT would have some proper evidential basis for the theory of harm that would underpin the Decision, whereas it was acknowledged by the OFT in Tobacco I that it did not; in the result Gallaher's co-operation with the OFT and its abandonment of its legal defence of the infringement claims were procured by false pretences (the "evidential basis argument").
Somerfield's Respondent's Notice raises the further two points based on the contention that the OFT's conduct during the administrative phase and during Tobacco I amounted to exceptional circumstances. First, it is suggested that Somerfield was entitled to assume that, if the OFT abandoned the theory of harm in the Decision, it would withdraw the Decision and give Somerfield the opportunity to respond to any new theory of harm it pursued (the "withdrawal argument"). Secondly, it is submitted that it is inconsistent with the principle of legal certainty for the OFT publicly to disavow the theory of harm in the Decision, but for Somerfield to remain bound by it in respect of the penalties imposed and for the purpose of civil follow-on proceedings under section 47A of the 1998 Act (the "legal certainty argument"). Gallaher also relies upon this latter legal certainty argument in its Respondent's Notice.
The relevant factual background is not as complicated as it might at first appear, but it cannot be properly understood without tracking the OFT's theories of harm as they emerged during the administrative phase of its investigations and during the hearing of Tobacco I.
Three theories of harm
There were essentially three important theories of harm that need to be carefully distinguished as follows:-
i) In the OFT's Statement of Objections of April 2008 (the "Statement of Objections"), which was addressed to two manufacturers including Gallaher (the "Manufacturers") and 11 retailers including Somerfield (the "Retailers"), and which was issued before the ERAs were entered into and gave rise to them, the OFT stated its theory of harm as being its intended decision that "each Manufacturer was involved in an agreement and/or concerted practice with each Retailer which restricted each Retailer's ability to determine its retail prices for the Manufacturer's products and thereby had the object and/or effect of preventing, restricting or distorting competition in the supply of tobacco products" in the UK in breach of Chapter I of the 1998 Act. Mr Jon Turner Q.C., leading counsel for Gallaher, accepted that this theory of harm was sufficiently broad to encompass those comprised in the next two sub-paragraphs. I shall call this theory of harm the "SO/ ERA theory". It is worth noting at this stage that the SO/ ERA theory was reflected in the appendix to the ERAs to which I shall refer in due course.
ii) The theory of harm advanced in the Decision (in April 2010) was litigated at great length in Tobacco I. It was common ground that the CAT in Tobacco I found that the OFT's theory of harm contained in the Decision was encapsulated in paragraph 40 of the OFT's skeleton as follows:-
"40. Assuming that [Imperial – the other Manufacturer addressee of the SO and the Decision] has a [parity and differential] agreement with a Retailer of the kind identified by the OFT:
a. If the retail price of Gallaher's brand increases, then the retail price of [Imperial's] rival brand must also increase.
b. If the retail price of [Imperial's] brand increases, then the retail price of Gallaher's rival brand must also increase.
c. If the retail price of [Imperial's] brand decreases, then the retail price of Gallaher's rival brand must also decrease.
d. If the retail price of Gallaher's brand decreases, then the retail price of [Imperial's] rival brand must also decrease".
This theory of harm has been referred to in this case as the "paragraph 40 restraints". For consistency, I will refer to it as the "paragraph 40 theory".
iii) As will appear hereafter, during the Tobacco I hearing, the OFT introduced a new theory of harm which it described in paragraph 2 of the written statement that it provided to the CAT on 9 th November 2011 as follows:-
"2. The OFT considers that the evidence before the Tribunal supports the conclusion that each of the Appellants has committed an infringement of the Chapter I prohibition comprising the agreement or concertation of:
a. specific retail prices in the context of the maintenance of the manufacturer's [parity and...
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