UK: The Cityhook Saga Continues

The OFT´s Prioritisation Criteria Under The Microscope
Last Updated: 16 March 2009
Article by Simon Holmes and Dr. Gordon Christian

Initially published in the March 2009 edition of Competition Law Insight.

Incredible as it may seem, seven years has now elapsed since Cityhook, a company only founded 10 years ago, complained to the OFT that many of its competitors and/or their trade association were guilty of anticompetitive conduct designed to force it out of the market.

The OFT investigated Cityhook's conduct at length (over four years in fact) before closing the case on administrative priority grounds.

After an unsuccessful appeal against the OFT's decision at the Competition Appeal Tribunal, Cityhook took its case to the Administrative Court, which has now considered for the first time the scope of the OFT's discretion to close Competition Act investigations.

Cityhook - the story so far

Cityhook complained to the OFT in February 2002 that several of its competitors and/or their trade association UKCPC had illegally entered into a collective boycott of Cityhook.

As the OFT investigation progressed, the case team formed a view that there was sufficient evidence to proceed towards a statement of objections in relation to both a collective boycott of Cityhook and the collective setting of wayleave fees (payable to landowners for access to their land to lay or maintain cables) by the UKCPC and/or its members. Unfortunately for Cityhook, as the case team prepared a draft statement of objections, the OFT's competition enforcement division underwent significant changes. Internal case review panels had been introduced in 2004, and the OFT chairman Philip Collins had announced in 2005 that the OFT's competition enforcement activities would (in future) be prioritised in accordance with six criteria that were published more formally in 2006 and recently declared to apply to the full range of the OFT's activities. After a review of the status of the case team's work on the Cityhook case, two senior OFT officials recommended closure of the case on administrative priority grounds. The case was formally closed in June 2006.

Cityhook appealed against the OFT's case closure decision to the CAT which, after applying its now well-established case law on appealable decisions (ie BetterCare, Freeserve, Aquavitae, Casting Book and Independent Water Company among others), concluded that the OFT's case closure decision was not an appealable decision and therefore Cityhook's appeal was inadmissible.

Administrative Court's Cityhook judgment

Cityhook essentially put forward three arguments as to why the OFT's case closure decision should be overturned.

  • The provisions of the Competition Act do not allow for prioritisation after a section 25 investigation has been initiated.

The first argument that Cityhook put forward was that the OFT's contention that it could continue to apply the prioritisation criteria (and therefore, if appropriate, close a case) even where the case was well progressed was contrary to the structure of the Competition Act. In Cityhook's view, the OFT's discretion to prioritise cases is restricted to the period before the OFT commences a formal section 25 investigation. After that, according to Cityhook, the OFT must proceed to "put its money where its mouth is" and make a decision on whether or not the conduct under investigation breached the Competition Act. That decision would then be challengeable on the merits at the CAT as an appealable decision.

However, the judge – Mr Justice Foskett – held that the OFT could properly take into account administrative priorities up until the point when a statement of objections is issued.

The authors would argue that the judge's decision on this point must be the right one. The capacity of the OFT's competition enforcement division will clearly fluctuate over time as large cases are either dealt with or settled and new major investigations (particularly into hardcore cartel infringements) start. In that context, either to force the OFT to take all section 25 investigations through to a conclusion (with possible delay caused to many other OFT cases) or for the OFT to refuse to initiate section 25 investigations for fear of capacity constraints of a later date seems less appropriate than a continuous, flexible review to ensure that the OFT at any one time deals with those cases that objectively deserve to be prioritised.

  • Certain prioritisation criteria lack a statutory basis.

The OFT had noted in its case closure decision that, when it applied the prioritisation criteria to the Cityhook case, two of the reasons why Cityhook fell short of the required threshold were that the consumer detriment caused by the alleged anticompetitive conduct was not very significant and that the concept of a collective boycott was not a hardcore infringement.

Cityhook maintained during the judicial review proceedings that these two prioritisation criteria had no basis in statute and that therefore the OFT had been wrong to apply them in the present case.

Unsurprisingly, Mr Justice Foskett came to the conclusion that consumer detriment was a factor that the OFT could (and indeed should) take into account when applying prioritisation criteria to a case. He relied primarily on the CFI's Automec judgment and on the article 81(3) guidelines to argue that consumer welfare is a vital consideration in competition policy.

Equally, and rightly in the authors' opinion, the judge concluded that the OFT was, in its prioritisation analyses, entitled to consider both the type of infringement and to set priority areas for enforcement action.

The only slight wrinkle that the authors would point out in this regard is that an excessive use of the "type of infringement" criteria might further skew the OFT's already very focused "object" infringement competition enforcement activities. As an effects-type infringement is clearly more work intensive and less likely to be prioritised by the OFT, there is a risk that complaints alleging an effects-type infringement may not even get past the OFT's new screening unit known as the "Preliminary Investigation Unit" (PIU). As effects-type cases will be very risky and difficult to win if brought to court by companies affected by such conduct, the authors believe that there is some risk that potentially very wide ranging and significant conduct possibly giving rise to an effects-based infringement becomes a lacuna in the UK's competition enforcement landscape. That is clearly not an outcome that either the OFT or consumers would welcome, particularly given that senior OFT officials have recently been at pains to point out that the adverse economic climate should be tackled not by a relapse into protectionism and state aid but by a continuing commitment to effective competition enforcement.

  • OFT's alleged errors of assessment.

Finally, Cityhook alleged that the OFT had made several errors of assessment when considering the evidence gathered during the investigation. Despite considerable sympathy for Cityhook's position, the judge did not find that these errors of assessment were of such gravity as to render the case closure decision Wednesbury unreasonable (that is to say, so unreasonable that no reasonable authority could have come to the same conclusion, as per the famous 1948 Associated Provincial Picture Houses Ltd v Wednesbury case ).

Cityhook - the saga continues

The Administrative Court added one final twist to this complex tale. This is because Mr Justice Foskett accepted Cityhook's submissions that the OFT had, so far, failed to fulfil its duties under the Competition Act 1998 (Concurrency) Regulations 2004, in accordance with which Competition Act cases can be transferred between different regulations with concurrent jurisdiction under the Competition Act. As the OFT had argued in its case closure decision that the case was not an OFT priority also because Ofcom had concurrent jurisdiction, the OFT was now, according to the judge, obliged to "take such active step or steps as may be necessary to invite Ofcom to consider agreeing to take over the case". This is a fairly robust test that the judge warned could not be satisfied by a brief exchange of correspondence. Whether Ofcom will take up the complaint will depend on its evaluation of Cityhook's complaint against its own prioritisation criteria and available resources.

Conclusion

This first judgment of the Administrative Court on the scope of the OFT's discretion to prioritise cases (and to close certain cases on administrative priority grounds) is interesting for a number of reasons.

First, the reasonably wide OFT discretion to prioritise cases is confirmed by the Cityhook judgment, and the authors do see merit in the court's position on this point. Cityhook's arguments, if upheld, would have resulted in an OFT decision-making process that would have been hampered by undue formality and inflexible outcomes that could not properly take into account current case workloads.

Having said that, the authors are still concerned that an excessive closing of cases on administrative priority grounds (and a "shut-door" policy for certain types of cases at the PIU stage) will lead to worrying gaps in the UK's competition enforcement landscape (ie where the OFT will not pursue the case and the complainant cannot afford to litigate). Secondly, judicial support for the OFT's wide discretion whether to pursue a case serves as a reminder that anyone bringing a complaint to the OFT should demonstrate clearly why the case meets the OFT's prioritisation criteria and why the OFT should dedicate scarce resources to pursuing it. It is not sufficient to have a good substantive case; it needs to be a case that the OFT considers worth fighting.

Thirdly, on a practical note, it must be said that the changes in the OFT's competition enforcement division in the last few years should (with luck) prevent a recurrence of the unfortunate factual circumstances of the Cityhook case. After all, in Cityhook, a complex and very costly four-year investigation was closed because the goalposts had shifted halfway through the investigation. In contrast, these days the OFT's PIU carefully screens Competition Act complaints against the OFT's prioritisation criteria before a section 25 investigation is launched (if at all). Therefore, it should now be possible for the OFT to apply the prioritisation criteria primarily at the PIU stage rather than to long-running investigations. This should also lessen the risk of the OFT being judicially reviewed on such matters, as the CAT's judgment in Cityhook and the line of appealable decisions case law referred to above should make clear to most complainants that the OFT's refusal to launch a section 25 investigation is very likely to be unchallengeable. This is because it will be seen as the exercise of the OFT's administrative discretion in prioritisation matters and not as an appealable decision.

Finally, the robust line taken by Mr Justice Foskett on the concurrency issue means that companies defending a competition complaint should not only focus on seeking to defend the allegations that may be put to them by the OFT, but also on convincing any other possible regulators with concurrent jurisdiction why they should not take the case either. If one is acting for a complainant, it will be worth bearing in mind whether an OFT complaint should be accompanied by an equivalent complaint to another regulator with concurrent jurisdiction. In Cityhook's case, Ofcom represents the second bite at the cherry (although the outcome of Ofcom's decision on whether to accept the complaint is very unpredictable at the moment).

All things considered, Mr Justice Foskett has largely confirmed the CAT's judgment in the Cityhook case, but his ruling on concurrency means that the company lives to fight another day.

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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