UK: OFT Issues Framework To Prioritise Cases

Last Updated: 4 January 2007
Article by Guy Lougher

The Office of Fair Trading (OFT) has released prioritisation criteria aimed at making sure that it concentrates its resources on work that will have the highest impact.

The OFT receives around 1,200 complaints each year alleging that there has been a breach of UK or EC competition law, but it only has the resources to open investigations into around 25-40 of those complaints. Consequently, the OFT is seeking to focus its resources on matters having the greatest public interest. Its approach is to target those cases with real merit and to reach decisions on cases more quickly.

A ‘Preliminary Investigations Unit’ has also been created recently, which is responsible for sifting through and prioritising competition cases in keeping with the OFT's Competition Prioritisation Framework.

The Framework prioritises competition enforcement cases on the basis of a number of factors, including:

  • The likely consumer detriment arising from the anti-competitive behaviour and an estimate of direct consumer benefit that would arise from intervention;
  • The likelihood of success;
  • The resources required to achieve the desired outcome;
  • The nature and seriousness of the alleged infringement (for example, allegations of price fixing or market sharing will generally be given priority);
  • Any aggravating factors (e.g. repeat offenders) or mitigating features (e.g. conduct has ceased); and
  • The precedent or policy value of the case.

Comment

The Framework, in conjunction with the OFT's new ‘markets-based’ organisational structure, is designed to enable the OFT to look more systematically at particular markets and cross-industry issues. It is also intended as a discouragement to companies to look to the OFT for competition law remedies in relation to commercial disputes and an encouragement to them to pursue their claims in the courts. Moreover, the OFT is hoping that the discretions contained in the Framework will help insulate it from actions for judicial review by complainants frustrated that their complaint has not been investigated.

CAT confirms OFT's discretion on penalties

The Competition Appeal Tribunal (CAT) has dismissed an appeal by Achilles Paper Group Limited against the fine imposed on it by the OFT and in doing so, has confirmed the OFT's margin of discretion in setting appropriate penalties for breaches of competition law.

The CAT found in favour of the OFT in the appeal by Achilles against the fine imposed on it for its part in a price fixing and market sharing cartel in the market for the supply of stock check pads in the UK.

The CAT unanimously dismissed the appeal by Achilles and found that the penalty of £127,848.75 imposed by the OFT was appropriate having regard to Achilles' cartel behaviour. It confirmed that, in relation to serious breaches of competition law, the OFT must impose penalties which act as an effective deterrent.

The appeal concerned the OFT's March 2006 decision, which found that Bemrose Group Limited, together with its subsidiary BemroseBooth Limited and Achilles, had colluded to share the market and fix prices for the supply of stock check pads in the UK.

The OFT imposed financial penalties on each of the parties. However, after providing the OFT with information which uncovered the cartel, both Bemrose Group Limited and BemroseBooth Limited had their penalties reduced by 100%. The penalty imposed on Achilles was reduced by 50%, as Achilles also provided the OFT with evidence relating to the cartel.

Achilles did not challenge the findings on infringement but claimed that the OFT had erred in concluding that the fact that Achilles would potentially become insolvent as a result of the fine did not warrant a further reduction in the level of the fine. Achilles commented that, in reaching this decision, the OFT had failed to follow its own Guidance as to the Appropriate Amount of a Penalty.

The OFT argued that Achilles' potential insolvency, whilst being one of a variety of factors that the OFT should take into account, is not necessarily a reason for reducing the fine.

Comment

The CAT considered that the OFT is not bound to follow its own Guidance in all respects (although it should give reasons where it departs significantly from the Guidance) and, in particular, that it has a margin of appreciation in setting financial penalties at a level that will operate as an effective deterrent. This gives the OFT an assurance that it continues to enjoy a margin of discretion and that this includes situations where the possible insolvency of the addressee of the decision may follow.

European Commission imposes second-highest ever fine

The European Commission has fined five companies a total of €519 million for participating in a cartel in synthetic rubber. The Commission found that Bayer Germany, Dow, Eni, Shell, Unipetrol and Trade-Stomil had colluded to fix the price of two types of synthetic rubber, used in making tyres, shoe soles, floor coverings and golf balls, over a period of at least six years. Bayer blew the whistle on the cartel and its fine was waived accordingly, whilst Shell and Eni had their fines increased for being repeat offenders. Shell had actually cooperated with the investigation, but its contribution was not deemed sufficient for it to be granted a reduction in the level of its fine. The total fine of €519 million is second in size only to the Commission's fine of €855.2 million imposed on members of a vitamins cartel in 2001.

OFT consults on proposal to refer Payment Protection Insurance market to the Competition Commission

On 30 November the OFT closed the consultation on its proposal to refer the Payment Protection Insurance market to the Competition Commission for a detailed market investigation. This is just one of a range of options open to the OFT. On reviewing all the information obtained through the consultation, it will produce a final report and decide by the end of the year whether to make the reference. Prior to commencing this consultation the OFT had already sought the views of insurers, distributors (including banks and other credit providers), intermediaries (such as brokers), trade associations and consumer organisations.

The PPI market was estimated to be worth £5.5 billion last year and is growing rapidly. If the reference takes place, the Competition Commission's probe is likely to cover PPI for mortgages, secured and unsecured loans and credit cards, but not store cards, which it has already investigated and reported on in March this year. The key concerns are the lack of information available to consumers, the high costs of entry into this sector, the large variation in prices and the sizeable gross profit margins of PPI providers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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