Guernsey: Competition Regulation Now Applies To Trading Agreements Pre-Dating Guernsey Competition Ordinance

Last Updated: 23 April 2013
Article by Kate Storey

Guernsey introduced its new competition ordinance on 1 August 2012 and with it regulation for the first time in Guernsey of three areas:

  • Control of mergers and acquisitions
  • Abuse of a dominant position
  • Anti-competitive agreements

For this third area, the prohibition of anticompetitive agreements, the ordinance provided a transitional period until 1 February 2013, during which the prohibition did not apply to agreements entered into before the ordinance came into force on 1 August 2012. This was to allow time to make any necessary changes to these agreements to ensure compliance with the law.

With the passing of the end of this transitional period the Guernsey competition ordinance now prohibits any agreements between undertakings, whenever made, where they prevent competition, or are intended to do so, such as agreeing to fix prices, limit production, allocate markets or customers, or bid rigging. The prevention of these anti-competitive arrangements has obvious beneficial effects for consumers, usually lower prices and better quality of goods and services, and this protection of consumers' interests is the object of the competition ordinance.

For the prohibition to apply there must be an 'agreement between undertakings', but this has very wide meaning and potentially catches any form of arrangement or understanding, whether formal or informal, contractual or non-binding, written or verbal, between any types of business traders, including companies, partners, sole traders, co-operatives, trade associations, private schools and even States departments when they are carrying on an economic activity as opposed to solely acting in the public interest. In Jersey, which has had its own competition law since 2005, the provision of drainage services to septic and tight tanks in Jersey by the States of Jersey Transport and Technical Services department was held to be an economic activity.

So, it can be seen that the prohibition could even potentially catch a conversation between representatives of two different firms whilst meeting informally as friends at the pub, where they agree an arrangement which could prevent competition within any goods or services market in Guernsey. Even exchanges of information between competitors, for example about future pricing intentions, can breach the prohibition, where one party requests it from another or at the very least accepts the information (and then is unable to show that they did not act on the information).

It is not even necessary that the parties to an anti-competitive arrangement have the intention to prevent competition from their competitors - if the arrangement has the effect of preventing competition it will fall within the prohibition.

It is these provisions of the competition ordinance that have led to the Guernsey Bar's decision to abolish the fixed conveyancing fee or "tariff" for Guernsey property transactions. For a number of decades, Guernsey advocates have been bound by their rules of professional conduct to charge a minimum fee to purchasers of real property, "real property" being buildings and land, as opposed to house contents and other personal possessions, which are known legally as "personal property". This tariff was set at 0.75% of the purchase price for the real property (i.e. not including the price paid for the contents, usually being a sum equal to 5% of the total agreed price), plus £100 or so for incidentals.

The tariff was originally introduced in order to ensure that certain minimum standards were maintained by law firms for what is, for most people, the largest investment they are likely to make. It also gave an element of certainty. However, it consisted of an agreement between undertakings to fix prices and therefore the prohibition of anti-competitive agreements under the new competition ordinance would apply to it from 1 February 2013.

Paul Nettleship, a partner in Collas Crill's property team comments: "The removal of the fixed percentage fee has allowed law firms to deviate from a prescribed rate, enabling them to offer clients a wider choice and encouraging them to compete for clients' business. Therefore, in theory, a consumer should have more choice, and benefit from reduced costs and a better service. In practice we shall have to wait and see if this is the case. I am not convinced that the correlation between reduced costs and better service will necessarily be a positive one. However, it is a matter of client choice, which is the fundamental principle of this legislation. The law will undoubtedly drive down costs for some, but it may also drive costs up for others. For example, it is often lower value properties which are more problematic in terms of boundaries, or complicated rights set up for flats and apartments."

One example of price fixing led CICRA (the pan-Channel Islands competition regulatory authority) to impose a fine for the first time for breach of the Jersey law on anti-competitive arrangements (which is essentially the same as the Guernsey law in this area). Jersey Telecom Limited was fined £2,500 last year for engaging in resale price maintenance - JT had set a minimum price at which retailers must sell JT SIM packs in Jersey. Setting minimum resale prices at which the businesses you supply to must resell goods to their customers restricts competition between the suppliers of those goods and undermines the potential for consumers to receive best prices and choice.

For 2013 CICRA is planning a market study into the cost and logistics of supplying groceries in the Channel Islands, which will inevitably bring a focus on the supply and distribution agreements of wholesalers and retailers of groceries in Guernsey.

It is not automatically a breach of the competition law if for example your agreement does carve up markets, where the parties to the agreement are at different levels of the supply chain - it is common to have exclusive supply or distribution agreements for a specific territory or customer group - legal advice should be taken as to whether such agreements comply with Guernsey competition law.

Agreements will not breach the prohibition if they do not have an appreciable effect on competition, because for example the combined market share of the parties involved is too low and they do not contain certain restrictions termed as "hard-core", including price fixing.

There is also the possibility in some circumstances of showing benefits of the arrangement which outweigh the anticompetitive effects and thereby permit the maintenance of the agreement or an individual exemption.

CICRA has extensive powers of enforcement of the competition ordinance, including:

  • wide powers to require parties to provide information;
  • "dawn raid" powers to enter premises and seize documents;
  • power to direct parties to cease illegal conduct; and
  • power to impose financial penalties (up to 10% of an undertaking's worldwide turnover for up to 3 years).

In addition, consumers or other third parties affected by an anti-competitive arrangement can complain to CICRA or sue the infringer for damages in the courts, and the infringing agreement will be rendered void and unenforceable.

All undertakings down to the very smallest, including sole traders, who engage in an activity consisting in offering goods and services in Guernsey should take legal advice on compliance with the Guernsey competition law. Collas Crill can advise on a compliance programme for your business including staff training and procedures for dealing with CICRA information requests and dawn raids.

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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