UK: News Update, Summer 1999 - General Commercial Law

Last Updated: 29 September 1999



The Competition Act 1998

The Competition Act 1998 is now in place, and introduces a 'clone' of EC competition law in UK national law, as a separate system additional to EC competition law. When fully implemented in March 2000, it will wipe away much of the existing UK law on the subject (the Restrictive Trade Practices Act 1976, the Resale Prices Act 1976 and the Competition Act 1980). Its principal provisions include the following:

  • a prohibition on agreements which prevent, restrict or distort competition in the UK (vertical agreements, i.e. those between businesses at different levels of the supply chain, are not to be caught by this prohibition)
  • a prohibition on conduct amounting to an abuse of a dominant position in the UK (vertical agreements could be caught by this in certain circumstances)
  • any restrictive effect will need to be appreciable for the law to apply

The Office of Fair Trading will have the power to impose penalties for breach of the rules of up to 10 per cent of UK turnover, to order infringing agreements to be brought to an end, and to make urgent 'interim measures' orders, and third parties adversely affected by the prohibited conduct will have the right to sue those responsible for damages.

The Office of Fair Trading will have extensive new powers to obtain information and to carry out investigations, with obstruction, providing incomplete or misleading information etc. being punishable by criminal sanctions. 'Privileged' confidential communications between companies and their legal advisers will not have to be disclosed.

Points to watch: The Act will come into force on 1 March 2000, and there are transitional provisions to cover the period from November 1998 (when the Act became law) and that date. Detailed guidance notes and 'block exemptions' are currently being developed by the OFT and the DTI. We shall see a very different OFT as a result of this, a body with real powers which it plainly intends to use.

Relevant trading agreements and practices will need to be reviewed in the light of these changes, and that ought to be happening now in advance of the Act coming into force.

Change of name for the Monopolies and Mergers Commission

On 1 April 1999, the Monopolies and Mergers Commission was renamed the Competition Commission. For the moment, its functions remain the same as before determining public interest issues in relation to monopolies and mergers, but only acting on matters referred to it by other relevant bodies (e.g. the recent reference by the OFT of grocery supermarkets; the reference last year by the Secretary of State for Trade and Industry of the Manchester United/BSkyB merger) and only able to recommend action to other bodies. Those functions will continue even once the Competition Act 1998 is in force. At that point, however, the Competition Commission will gain a second role. A separate 'wing' of the CC will be the Competition Commission Appeal Tribunal, the body to which appeal will lie against decisions of the OFT made under the Competition Act.

Possible changes to UK merger control

Readers may have seen announcements in the press early in the year that the government is considering changing the way competition law merger control operates in the UK. At present, key decisions are taken by the Secretary of State for Trade and Industry, acting on advice from the OFT (in easy cases) and sometimes also from the Competition Commission (ex-MMC) in more difficult cases, and political discretions are central to the system. The changes which the government is considering would involve removing the role of the Secretary of State and leaving matters to be determined wholly by the OFT and the Competition Commission. If that were to happen, it would be the biggest change to UK merger control in over 30 years. It is clear, however, that the government's thinking on this is only at a very preliminary stage. No changes are expected this side of a general election at the earliest.


On 1st May 1999, the Treaty of Amsterdam came into force, the practical effect of which is that all EC Treaty Articles have now been renumbered. The old Articles 85 and 86 are now Articles 81 and 82 EC! The content and the substance have not changed.

If an agreement or an abuse of dominant position affects trade between EC countries, then EC competition law (now Articles 81 and 82) come into play.

The European Commission's work towards changing the system of 'block exemptions' for vertical agreements (see above)(see endnote 1) has continued, with the changes expected to be in force by the end of this year. The changes will involve:

a single 'block exemption' for all types of vertical agreements not separate 'block exemptions' for different types of agreements (exclusive distribution, exclusive purchasing, franchising etc.) as at present

a more permissive regime than at present, with the system identifying clauses which are not permitted rather than those which are, and with a tighter standard of what is not 'block exempt' applying, the higher the market share is of the supplier under the agreement

certain types of restrictions (e.g. resale price maintenance, restrictions on the buyerÍs choice of downstream customers etc.) will be prohibited regardless of market share

The changes reflect a general acceptance of modern economic thinking that, where neither party to a vertical agreement has a dominant position in its market, vertical agreements are (with some qualifications) generally likely to be pro-competitive rather than anti-competitive.

As in the case of deciding what is 'appreciable effect' for an agreement, one of the most complex issues will be defining the 'market', both by type of product and geographically. Expert assistance is vital if you have exposure or anticipate problems in this area.

Possible changes to EC competition law procedures

At the end of April, the European Commission published a 'White Paper' on modernising the enforcement procedures for Articles 81 and 82. This is at a very much more preliminary stage than the proposed changes on vertical agreements, but it is a useful indicator of the way things are likely to develop.

There is an important recognition that the Commission's procedures for dealing with agreements notified for individual exemption under what is now Article 81(see endnote 1) are too bureaucratic and have not worked effectively for a long time. The Commission acknowledges that it should limit its enforcement activities to the most important cases and those with clear operation in several EC countries at once. This is not new. What is new is the acceptance that, to fill the resulting enforcement gap, more in the way of powers to enforce EC competition law should be delegated to national competition authorities such as (for the UK) the OFT. Quite how this will end up remains to be seen, but it would be reasonable to expect an even further enhanced role for the OFT as a result

Contact name: Jeremy Scholes

Agents' Entitlement To Commission

Disputes are common between sellers and their agents as to whether or not an agent is entitled to commission on a particular sale to a buyer introduced by them. A recent case gave some guidance (see endnote 2).

The goods concerned were three works, one each by Turner, Gainsborough and Constable, self-evidently making the 2.5 per cent commission at stake worth fighting for! The agent, an art dealer, was offered this commission to sell one or more of three works to a buyer introduced by him. The agent introduced the buyer for the Gainsborough. After some time, and although the agent had no part in the negotiations, the same buyer also bought the Constable. Was the agent entitled to the commission on the second sale?

The agent, an art dealer, was offered this commission to sell one or more of three works to a buyer introduced by him. The agent introduced the buyer for the Gainsborough. After some time, and although the agent had no part in the negotiations, the same buyer also bought the Constable. Was the agent entitled to the commission on the second sale?

The Court decided that whilst individual circumstances may vary, the normal test in such cases was whether the agent was 'an' or 'the' effective cause of the sale. With respect to what constituted 'introduction' the key criterion was whether it was the agent's actions that really brought about the relationship between the buyer and seller. In these particular circumstances this was shown to be the case.

Points to watch: This case demonstrates the importance of having clear statements in the agency agreement of when a sale could be attributed to the agent and when commission might be payable.

Contact name: Nick Bates


A recent case (see endnote 3) establishes that although a company that is a victim of the disclosure of confidential information to a third party will have a remedy against the party who, in breach of fiduciary duty, disclosed this information, it will not have a remedy by way of constructive trust against the third party who benefited from the information, unless it can be established that the third party itself acted dishonestly.

In this case, the first defendant was a surveyor retained by the claimant, a property development company. Without the knowledge of the claimant, the surveyor, in breach of its fiduciary duty, disclosed certain information to the second defendant, a rival development company. Using this information, the second defendant purchased a site over which the claimant at the time of the disclosure had an option to purchase.

At first instance, the judge held that the second defendant's knowledge that the surveyor was in breach of fiduciary duty was sufficient to make it a constructive trustee of the site for the claimant. However, the Court of Appeal overturned the decision on the basis that, on the facts of the case, the second defendant had not participated in the breach of fiduciary duty, nor had owed any duty itself, nor had it acted dishonestly. The Court of Appeal held that it was inequitable to allow the claimant to recover simply on the basis that there was a degree of confidentiality in the information at the time it was disclosed to the third party. Accordingly, the claimant's remedy was against the surveyor only.

Points to watch: The case demonstrates the importance of ensuring that all confidential information remains so, as there will be no remedy against a competitor using the information, unless that competitor itself has acted dishonestly.

Contact name: Gwendoline Davies


Many agreements and standard terms of trading contain clauses which seek to limit or exclude damages in the event of there being a breach by the party relying on that clause. To what extent can such a clause be challenged?

An architect of a property attempted to limit his liability for breach of contract or negligence to £250,000 (see endnote 4). The work was done negligently and the client tried to sue for a larger sum - was he restricted to claiming the £250,000 limit? The Unfair Contract Terms Act requires any such clause to be 'reasonable' and the Court had to consider which criteria were relevant in deciding what was reasonable. The Court highlighted the following as being important:

  • the client was aware that the clause was included when the contract was made
  • the £250,000 was not an arbitrary figure, reflecting as it did the likely cost of the works
  • the client could have appointed any architect and was therefore in a strong bargaining position

Points to watch: This is not an exhaustive list of the matters which may be taken into account. It is necessary for businesses to think carefully about the terms of their trading agreements in the light of the various legal provisions which can be used to set aside 'unreasonable' clauses. This is especially the case when the terms are on 'standard' printed forms particularly when dealing with consumers or, in the case of business-to-business transactions, when there is significant bargaining inequality. In these cases there is a greater chance that such clauses may be unenforceable.

Contact name: Alison Farrar


1. European Commission Communication on the application of EC competition rules to vertical restraints, 30 September 1998

2. Nahun v Royal Holloway and Bedford New College, Times 19 November 1998

3. Satnam Investments Ltd v Dunlop Heywood and Co Ltd and Others, Times 31 December 1998

4. Moores v Yakeley Associates, Technology and Construction Court, 28 October 1998 QBD PLC 98 9(11) 58-59

Walker Morris Client Newsletters can serve only to alert the reader to recent developments and to act as a preliminary, but no comprehensive guide. They should not therefore be relied upon in place of specific advice.

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