UK: No Duty Of Equal Treatment Or Fairness Owed To Those Under A Competition And Markets Authority ("CMA") Investigation

R (on the application of Gallaher Group Ltd and others) v The Competition and Markets Authority [2018] UKSC 25

On 16 May 2018 the Supreme Court ("SC") allowed an appeal by the Competition & Markets Authority ("CMA") against a Court of Appeal judgment that found that the Office of Fair Trading ("OFT", i.e. the predecessor to the CMA) had acted unlawfully by failing to repay Gallaher's and Somerfield's fines which were imposed as a result of the tobacco retail pricing decision (whereas the OFT had repaid the fines imposed on Martin McColl Retail Group Ltd and TM Retail Group, i.e. "TMR").

The SC determined that UK law does not recognise equal treatment as a distinct principle of administrative law. Whereas those subject to a CMA investigation had a legitimate expectation that they would be treated equally, the CMA did not owe them a duty of 'equal treatment' or 'fairness' when conducting early resolution settlement negotiations.

Even if the OFT had breached a legitimate expectation by failing to give the same assurances to Gallaher/Somerfield as it did to TMR, that did not provide a basis for reversal of the fines imposed. The distinction in treatment between TMR and Gallaher/Somerfield was objectively justified and was not irrational.

The SC also unanimously ruled that a mistake benefiting one party made during early resolution settlement negotiations should not be replicated so as to treat all parties fairly.

Background

In April 2008, the OFT issued a statement of objections to a number of parties alleging infringements of competition law in relation to the fixing of retail prices for tobacco products. Gallaher and Somerfield (together the "Respondents") were two such parties placed under investigation.

In June 2008, six parties, including the Respondents, entered into Early Resolution Agreements ("ERA") with the OFT. These ERAs required an admission of the infringement and the provision of further cooperation with the OFT. In return the party under investigation would receive a reduction in any penalty imposed. Upon issuance of the final decision, a signatory to an ERA was still able to, if it wished, submit an appeal to the Competition Appeal Tribunal ("CAT").

At about the same time, TMR specifically asked for an assurance that it would receive the benefit of any successful appeal against the OFT's decision by another company. On the basis of an assurance given by one of the OFT's case officers, TMR agreed to enter into an ERA and not appeal. No other company was given a similar assurance.

In April 2010, the OFT issued its final decision upholding the finding of infringement against the Respondents, together with ten other parties that had also been under investigation, and fined them £225 million. The Respondents chose not to appeal the decision and instead paid the discounted penalty under the ERA to the OFT.

However, six parties successfully appealed the OFT's decision to the CAT and in December 2011 the final decision against the appealing parties was overturned. TMR subsequently wrote to the OFT to request that the final OFT decision against them be withdrawn, citing reliance on the assurance given by the OFT and threatening legal action for failure to do so. Following the CAT decision, a further settlement was agreed under which the OFT would refund TMR its fine and make a contribution to interest and legal costs it had incurred, but the final decision against TMR would remain.

Upon publication of TMR's settlement agreement, the Respondents argued that they should receive the same treatment and benefit from the assurance given to TMR. However, the OFT refused to also refund their penalty sum and so the Respondents brought claims for judicial review.

It was held in the High Court that the assurance given to TMR was a mistake and that the OFT had an objective justification for refusing payment because "as a general rule a mistake should not be replicated where public funds are concerned."

This decision was overturned in the Court of Appeal where it was held that by failing to repay the penalties, the OFT had treated the Respondents differently to TMR without objective justification. This was a breach of the principle of equal treatment and was unfair. The Court of Appeal considered that the appropriate relief was for the CMA to repay Gallaher and Somerfield the fine pursuant to the tobacco retail pricing decision, together with interest and costs.

Subsequently, the CMA appealed this decision to the SC.

Judgment of the Supreme Court

The SC determined that whereas the Respondents had a legitimate expectation to be treated equally, the CMA did not owe them a duty of 'equal treatment' or 'fairness' when conducting early resolution settlement negotiations. Although consistency was generally a desirable objective it was not an absolute rule.

It was held that failure to replicate the assurance given to TMR only amounted to an administrative complaint; it did not provide a basis for refund of the penalty sum. As Lord Carnwath explained:

"All those who entered ERAs were aware of the possibility that other parties would appeal and might be successful. That was a risk the respondents took... they knew what they were doing and accepted it with their eyes open. TMR did not. They sought and obtained an assurance on which they claimed to have relied. In 2012 the OFT could reasonably take the view that, if the assurance were not honoured, TMR would have had a strong case for permission to appeal out of time, whereas the respondents did not...If objective justification were needed for the OFT taking a different approach to TMR, that in my view was sufficient; nor was it irrational for them to do so."

The mistake made by the OFT was providing an assurance to TMR, as they acted inconsistently with the purpose of the early resolution procedure and against their own policies of non-discrimination. It is not correct to say that their mistake was failing to provide the same assurance to the Respondents.

"Where a public authority has a choice of this kind, and one of the options avoids replicating an earlier mistake, but at some cost to equal treatment, the choice is one for the authority, not for the court... subject to the usual constraints of lawfulness and rationality." (Lord Briggs)

"...although the decision to repay TMR also was discriminatory, the discrimination was objectively justified." (Lord Sumption)

Practical implications

In this case, the issue for Gallaher and Somerfield was that they did not obtain explicit assurances from the OFT, but the OFT accepted that it had made a mistake offering such assurances to TMR. Accordingly, it is unlikely that such a scenario is likely to repeat itself. Nonetheless, this ruling confirms the importance of finality and certainty in enforcement actions. A signatory must assess the commercial risks of an early settlement agreement and accept the consequences of its finality and of its terms. It will be an exceptional case where settling parties can re-open a settlement that they have entered into voluntarily. This ruling provides very useful clarification on the extent to which English public authorities are obliged to take equal treatment and fairness into account in their decision-making.

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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