European Union: An Unappealing Prospect: The CAT’s Cityhook Judgment Threatens UK Competition Law Enforcement

Originally published in Competition Law Insight, June 2007.

The Competition Appeal Tribunal's recent judgment on the appealability of the OFT's case closure decision in the Cityhook case is the third CAT decision in the last six months on the concept of an "appealable decision" within the meaning of sections 46 and 47 of the Competition Act 1998 (the Act). Although at first sight the three CAT decisions, all of which conclude that the case closure decision in question was not an appealable decision, appear to show a clear trend, a closer examination of Cityhook in particular reveals that even the CAT itself is not necessarily happy with the outcome. In this article, the authors argue that, out of the three recent CAT judgments, the Cityhook case clearly demonstrates the risks for effective competition enforcement if the OFT is given too much latitude in deciding which cases to take forward to a final decision.

Background To The Cityhook Case

Cityhook was a company active in the sub-sea cabling market. It sought to exploit new proprietary technology to compete with more established players such as BT plc, Alcatel and Cable & Wireless in the laying and landing of sub-sea cables. Some of these larger players together with other cable companies such as Sprint Communications, TDC and Virgin Media are members of the United Kingdom Cable Protection Committee (UKCPC). The UKCPC is essentially a trade association for cable companies, with a focus on technical and safety issues.

The Complaint And The OFT Investigation

In February 2002, Cityhook complained to the OFT that it was the victim of an alleged collective boycott by UKCPC and/or its members. Cityhook alleged that concerted action was being taken by UKCPC and/or its members to prevent Cityhook from entering the sub-sea cabling market, and that this was a breach of the Chapter I prohibition of the Act. Six months later, in August 2002, the OFT started a formal section 25 investigation regarding the alleged collective boycott.

Having gathered and reviewed a variety of documentary evidence submitted by Cityhook and requested from other relevant parties in the investigation, the OFT uncovered evidence suggesting a possible violation of the Chapter I prohibition of the Act due to alleged collective setting of "wayleave fees" by the UKCPC and/or its members. "Wayleave fees" are fees which are paid to landowners by cable companies, for example telecom companies, for required access to land to lay and maintain cables on that land. Nine months after the OFT opened the collective boycott investigation, the OFT opened a parallel section 25 investigation regarding the alleged collective setting of wayleave fees.

From the detailed description in the CAT's judgment of the steps which the OFT took in the early stages of both investigations, it is clear that (at least in those early stages) the case team felt that significant amounts of evidence pointed to a possible infringement of UK competition law by UKCPC and/or its members. Indeed, as the CAT points out at paras 28 and 33 of its judgment, the case team prepared two "skeletons" essentially, briefing papers for senior OFT officials outlining the progress of the investigation up to that point and possible conclusions on the evidence and on both occasions Sir John Vickers (then chairman of the OFT) agreed that the investigation should be pursued.

However, with the introduction of internal case review panels in May 2004, and further structural changes to the OFT's competition enforcement division from the middle of 2005, the OFT's approach to cases being investigated changed significantly. There was a new emphasis on high-profile, high impact cases, and increasingly the OFT scrutinised ongoing investigations to ensure that only those which fell within the OFT's new prioritisation regime were still being pursued.

The Cityhook case team spent December 2004 to August 2005 drafting a statement of objections which covered both alleged infringements, the collective boycott and the collective setting of wayleave fees. From August to October 2005, the draft statement of objections was (in accordance with newly introduced case review panels) peer-reviewed by OFT officials not connected with the ongoing investigation. It became clear that, whereas the case team believed that the alleged infringements were "object" infringements, the case review panel believed the alleged infringements were (if they could be categorised as infringements at all) "effect" infringements.

Two internal reviews of the case were arranged: one by the new branch director in the competition enforcement division and one by the senior director of competition casework. Although slightly differing in their respective views on the strength of the substantive merits of the case, both reviews concluded that non-infringement decisions were not appropriate (ie at least technically, the UKCPC and/or its members had a case to answer). However, both reviews also concluded that both investigations should be closed because of administrative priorities.

Appealing The OFT's Case Closure Letter

Having consulted interested parties on its provisional case closure decision in January 2006, the OFT informed all interested parties on 23 June 2006 that both investigations (the alleged collective boycott and the alleged collective setting of wayleave fees) had been closed by a decision dated 19 June 2006 on the basis that the cases no longer constituted an administrative priority for the OFT. In the case closure letter, the OFT justified its decision by reference to the six prioritisation criteria which it had newly introduced to make decisions about the allocation of its scarce resources.

Cityhook appealed against the OFT's case closure decision to the CAT on 23 August 2006. The OFT said that the CAT did not have jurisdiction because the OFT had not taken an appealable decision within the meaning of sections 46 and 47 of the Act. Interestingly, Cityhook hedged its bets and started judicial review proceedings in the Administrative Court regarding the OFT's closure decision, as well as a Chancery Division action against the UKCPC and several of its members.

The CAT's Judgment On Appealability

After having reviewed previous case law on appealable decisions, notably its own judgments in the BetterCare, Freeserve, Aquavitae, Casting Book and Independent Water Company cases, the CAT summarised the three crucial issues when deciding whether an OFT decision is appealable or not: (1) it is a question of fact in all the circumstances of the case; (2) it is a question of substance, not form; and (3) has the OFT merely exercised its administrative discretion or has it expressed a view, even by implication, on the question of infringement?

In its judgment, the CAT reviewed the facts of the Cityhook case in great detail in order to establish whether, in essence, the OFT had expressed a view on the question of whether the conduct of the UKCPC and/or its members constituted an infringement of the Chapter I prohibition of the Act (as Cityhook maintained), or whether the OFT had merely exercised its administrative discretion to close the case without making a decision on the presence or otherwise of an infringement (as the OFT maintained).

The most likely reason for this detailed review of the facts by the CAT is that, in contrast to previous cases (like Casting Book or Aquavitae), this was a long-running OFT investigation over several years in which several officials believed that the evidence showed a breach of the Chapter I prohibition and in which a draft statement of objections had already been prepared. Could it therefore genuinely be said that the OFT had not expressed a view on the question of infringement?

First, the CAT pointed out that, even though the OFT claimed that the six prioritisation criteria which the OFT applied in this case were all administrative in nature, the CAT was of the view that at least three of the criteria also had a substantive aspect for example, the likely extent of detriment and the strength of evidence available. Therefore, when applying such criteria, the CAT considered that the OFT had undertaken both an administrative and a substantive review of the case before deciding whether it should proceed.

Second, the CAT considered Cityhook's argument that, by stating that there did not appear to be a "hardcore infringement", the OFT had impliedly decided that an effects-based infringement rather than an object-based infringement may have occurred. Although criticising the OFT for using the term "hardcore infringement" as vague and unhelpful the term did not always refer to object-based infringements the CAT did not believe the evidence was strong enough to suggest that, by ruling out a hardcore infringement, the OFT had by implication found an effects-based infringement.

Third, the CAT rejected Cityhook's argument that the OFT, by finding possible evidence of an effects-based infringement but not having sufficient evidence for an infringement decision, may have impliedly reached a non-infringement decision. The CAT had held in Claymore that such an implication could be drawn in some circumstances but, on the facts in Cityhook, the CAT did not believe that this was an appropriate conclusion.

The CAT concluded, therefore, that the case closure decision was not in substance an appealable decision but a mere exercise of the OFT's administrative discretion, and Cityhook's appeal to the CAT was therefore inadmissible.

Consequences Of The Cityhook Judgment

Unsurprisingly, the OFT has welcomed the judgment in particular, the CAT's decision that even cases which had reached an advanced stage could be closed if the OFT considered that other work was more deserving of its scarce resources. Interestingly, in the April 2007 case closure decision relating to Spectron's complaint against the London Metal Exchange, the OFT specifically states that "as [its] investigation was incomplete on closure, the OFT had not reached a concluded view as to whether the LME had infringed article 82". This wording appears to be designed to head off a CAT challenge of its LME case closure decision.

However, in a previous article (see The CAT's decision in the Casting Book case) to this journal (see CLI 13 February 2007, p14), the authors have already argued that care must be taken that the overall effectiveness of competition enforcement in the UK remains high in a situation where more and more companies, particularly small and medium-sized ones, are unlikely to be able to persuade the OFT either to take on a new case or not to close an existing investigation. Indeed, the CAT itself noted in its judgment that OFT infringement decisions are very valuable for effective private enforcement of competition law, as the evidential burden for claimants is relaxed.

Many companies do not have the resources to bring private actions in the courts to prevent anticompetitive activity or to recover damages. They are therefore dependent on competition authorities to act on complaints if the case is well founded. If the OFT will not do so, not only do the companies have no effective remedy, but potentially harmful infringements of competition law are likely to continue unchecked.

Should the position arise where neither the OFT nor companies have the resources to challenge anticompetitive behaviour, this would be a very worrying development indeed, and the CAT notes in para 211 of its judgment that "the effectiveness in competition law enforcement in the UK would be seriously undermined".

The authors would argue that therefore the Cityhook decision gives rise to potential problems in safeguarding the effectiveness of UK competition law enforcement. The more the OFT makes use of its apparently ever-widening, CAT-approved remit to close existing cases and to refuse to open new investigations, the more situations will arise when competition infringements are left unchecked and the more private enforcement may suffer. It strikes the authors as odd that this should be the OFT's policy at a time when the encouragement of private enforcement is high on the agenda of practically every competition authority in Europe.

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