The Queen (on the application of (1) Gallaher Group Ltd and (2) Gallaher Ltd v Competition and Markets Authority
| Jurisdiction | England & Wales |
| Judge | Mr Justice Collins |
| Judgment Date | 26 January 2015 |
| Neutral Citation | [2015] EWHC 84 (Admin) |
| Date | 26 January 2015 |
| Docket Number | Case Nos: CO/10469/2012 & CO/10838/2012 |
| Court | Queen's Bench Division (Administrative Court) |
[2015] EWHC 84 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Collins
Case Nos: CO/10469/2012 & CO/10838/2012
Lord Pannick QC and Mr Hanif Mussa (instructed by Slaughter and May) for the Claimants in CO/10469/2012
Ms Monica Carrs-Frisk QC and Ms Jessica Boyd (instructed by Burges Salmon LLP) for the Claimants in CO/10838/2012
Mr Daniel Beard QC, Mr Andrew HenshawQC and Mr Brendan McGurk (instructed by CMA Legal) for the Defendant
Hearing dates: 19 th and 20 th November 2014
These two claims have pursuant to directions given by Blake J following his grant of permission to pursue them on 5 August 2014 been heard together. They raise issues which are common to both. The defendant was until 1 April 2014 the Office of Fair Trading (OFT) and it is convenient to continue to refer to it as the OFT in this judgment since all material documentation identifies it in this way.
In March 2003 the OFT began an investigation into the tobacco market. It believed that there might have been infringements of Section 2(1) of the Competition Act 1998 (the 1998 Act) by virtue of "agreements between undertakings, decisions by associations of undertakings or concerted practices which (a) may affect trade within the United Kingdom, and (b) have as their object or effect the prevention, restriction or distortion of competition". Section 2(2)(a) of the 1998 Act applies s.2(1) in particular to agreements, decisions or practices which "directly or indirectly fix purchase or selling prices or any other trading conditions". The infringements alleged in these cases are of what is known as the Chapter 1 prohibition.
Section 25 of the 1998 Act empowers the defendant to investigate, inter alia, where there are reasonable grounds for suspecting that there is an agreement which may affect trade within the UK and has its object or effect the prevention, restriction or distortion of competition with the UK. If following such an investigation the defendant proposes to make a decision that there has been an infringement of inter alia s.2(1) of the 1998 Act, Section 31(1) of the 1998 Act requires it to:-
"(a) give written notice to the person (or persons) likely to be affected by the proposed decision; and
(b) give that person (or these persons) an opportunity to make representations".
The written notice required by s31(1)(a) is called a Statement of Objections.
On 24 April 2008 the OFT issued a Statement of Objections (SO) addressed to thirteen parties, namely two manufacturers (Gallaher and Imperial Tobacco) and eleven retailers. The SO ran to 419 pages and set out the material conclusions and evidence which had led the OFT to consider that an infringement of the Chapter 1 prohibition had occurred. It also indicated what action the OFT intended to take and its reasons for so doing. Two types of infringement were alleged. First, that there was an agreement between each manufacturer and each retailer whereby the retailer would apply what were termed 'pricing relativities' between competing brands as required by the manufacturers. This restricted the retailer's ability to apply different prices. Secondly, that there had been what was called 'illegitimate indirect contact' whereby some of those involved had exchanged information about future retail pricing intentions with their competitors. Both of these were said to have the object or the effect of preventing, restricting or distorting competition in the supply of tobacco products in the UK in breach of s.2 of the 1998 Act.
If, following consideration of any representations made by those served with SOs, the defendant decides that a party has infringed the Chapter 1 prohibition, it may by virtue of s.36(1) of the 1998 Act require the payment of a penalty if satisfied that the infringement has been committed intentionally or negligently (s36(3)). Section 46(1) of the 1998 Act provides for a right of appeal to the Competition Appeal Tribunal (CAT). An appeal can be brought against a decision that there has been an infringement and against the amount of any penalty (s.36(3)(a) and (i)). This is what in other contexts would be termed liability and quantum.
Prior to 2008 the OFT offered what Ms Branch, who was between 2007 and 2009 the Senior Responsible Officer dealing with the Tobacco case, calls a type of administrative settlement process to a small number of cases. It could also offer a discount on penalty to those who co-operated in any investigation and an agreement not to impose any penalty on a whistleblower. The former offer, under what was described as the OFT's leniency programme, had meant that the second claimant was granted a 30% reduction in penalty. One of the eleven retailers had had no penalty imposed as a whistleblower.
There had been no published OFT guidance on any settlement mechanism. The OFT decided that an Early Resolution (ER) process was desirable. Such process would lead to an agreement, known as an Early Resolution Agreement ( ERA). The broad effect of this would be that the party concerned would receive a substantial discount in penalty if it admitted the infringement and did not appeal to the CAT. Thus there would be a finding that it had infringed the material prohibition, which could be used against it if any claim by anyone who alleged he had suffered loss by virtue of the infringement were brought.
On 28 January 2008 the OFT produced a paper described as "A Principled Approach to Settlements in Competition Act Cases". At its outset, it said:-
"'Settlement' in this context means an agreement between the OFT and one or more parties to a Competition Act investigation, whereby a reduced penalty is imposed, in return for an admission of liability and various other types of co-operation. A Statement of Objections and infringement decision will still be issued (in contrast to the position where cases are resolved by way of commitments or informal assurances). However, the administrative procedure will be significantly streamlined and shortened and the appeal risk significantly reduced, as a result of the settlement".
It was recognised that the paper was not definitive and that a flexible approach allowing the OFT's policy to develop in the light of experience was needed.
Since this was one of the first cases in which the ER process had been used, Ms Branch has stated:-
"What the OFT was doing was new and challenging. I was conscious that the OFT could be setting significant regime precedent and the progress of the ER process in the Tobacco case was closely tracked by the Executive Committee (ExCo). The outcome of the ER process was seen to be important not just for the Tobacco case, but for the broader OFT portfolio and reputation at the time. I provided regular updates and progress to ExCo and the Board".
The paper sets out ten principles to be applied. The most material for the purposes of this claim is Principle Three, entitled 'Fairness, transparency and consistency are integral to an effective settlements process'. It reads:-
"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 particular 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 EPD principles, and in light of the considerable 'knock-on' effects that settlements may have, particularly at this nascent stage in their development, API should be involved early when settlements are being considered."
It is unnecessary for the purposes of this judgment to cite more of the paper in any detail. It is noted in paragraph 35 that it is desirable to distinguish in negotiations between discussions relating to the settlement discount and those relating to substantive elements of the penalty calculation. The latter will involve the parties making representations on penalties. These may (albeit this is not stated in terms in the paper) obviously involve elements peculiar to the individual party. The appropriate settlement discount is likely to apply to all involved in any settlement such as was considered in the Tobacco case. That is because the Tobacco case was what is referred to in the paper as a hybrid case. A hybrid case, in so far as applicable to these claims, includes one in which some, but not all, parties are willing to settle. Extra caution is said to be needed in dealing with hybrid cases since resource savings in settling with some but not all parties are likely to be of a lesser magnitude and could be swallowed up in expending additional resources on complex partial settlements. In paragraph 54, it is said, in relation to hybrid cases:-
"One issue worth noting upfront, however, is that the importance of adequate advanced preparation and...
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