On 12 December 2011, the Competition Appeal Tribunal (CAT) quashed, in relation to Co-op, WM Morrison, Safeway, Asda, Imperial Tobacco and Shell, a decision by the Office of Fair Trading (OFT) from April 2010 in which the OFT fined two tobacco manufacturers and ten retailers a total of £225 million for infringing UK competition law through practices which affected retail prices for tobacco products in the UK (see our earlier law now).

The OFT's decision concerned arrangements whereby suppliers linked the price of a tobacco brand with that of a competing supplier's brand and which restricted the ability of retailers to determine their selling prices individually.  The OFT's investigation was initiated by a retailer applying for leniency regarding the arrangements. The OFT reached settlement agreements with certain retailers and a tobacco producer, all of whom admitted liability for infringements of competition law alleged against them.  By contrast, Co-op, WM Morrison, Safeway, Asda, Imperial Tobacco and Shell, none of whom reached a settlement with the OFT (except Asda), all appealed against its infringement decision.

The CAT has now quashed the OFT's decision in relation to the appealing parties. The reasons for the CAT's decision are complicated, but, in essence, are due to a crucial mishandling of the evidence by the OFT, which forced it to change its arguments before the CAT, taking the case beyond the CAT's remit as set out in the specific grounds of appeal. 

During the progress of the appeal hearing, it became clear that none of the factual witnesses believed that the restraints of competition relied upon by the OFT formed part of agreements between Imperial Tobacco and the relevant retailer, which was the foundation of the OFT's case against these parties. The OFT then acknowledged that, in some of the cases, it appeared that the anti-competitive harm identified in the OFT's decision may have been caused in a different way than identified in the decision.

While this case may be seen as a significant loss for the OFT in relation to one of its most high-profile cases, it is important to note that the CAT's decision did not consider the competition law compatibility of the arrangements in place.

The CAT rather found that the decision should be quashed for two reasons:

  • due to the failure of the OFT's original case (because of the lack of evidence regarding the infringements alleged in the decision); and
  • due to the CAT having declined to proceed with the appeals on the basis of new arguments put forward by the OFT.

The CAT noted that the arguments against it exercising a discretion to proceed with the case on the basis of these new arguments were "overwhelming". It noted that the OFT had relied only on one witness statement, which was made before the OFT issued its statement of objections and "well before the issues had crystallised in the decision". The CAT added that if the OFT had tested this evidence more stringently, for example by having the witness statement updated, it might have become clear sooner that this evidence did not appear to be consistent with the OFT's findings in the decision. In addition, 19 witnesses stated that the documents relied on by the OFT did not bear the meaning attributed to them by the OFT and none supported the OFT's understanding of these documents. No witness said that he had entered into or operated an agreement of the kind condemned by the OFT's decision.

The CAT concluded that the restraints of competition which the OFT later alleged were in fact not part of, or within, the infringing agreements identified in the OFT's decision. The CAT stated it had no jurisdiction to continue to hear the appeals and that it must quash the OFT's decision in relation to the appellants.

Given that the CAT did not, as noted above, specifically consider the competition law compatibility of the pricing arrangements in place, some uncertainty may still remain.  The fundamental point of this and other cases therefore stands: that while pricing strategies may often be complicated, those which allow retailers freedom in their pricing decisions and do not contain a link to the prices charged by third parties should generally be acceptable under competition law.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 13/12/2011.