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Competition Law

Analysis - debate - current awareness

14 DEC 2011

CAT quashes OFT's tobacco retail pricing decision

On 12 December 2011 the UK’s Competition Appeal Tribunal quashed one of the OFT’s most significant Chapter I decisions.  The CAT said it would allow the appeals after the OFT was forced to refine its case following the cross examination of witnesses.

The investigation which led to the challenged Decision was triggered by an application for leniency made by Sainsbury’s in March 2003.  The Statement of Objections was issued in April 2008 and the OFT’s Decision on 15 April 2010.  The Decision found that the two main manufacturers of tobacco products in the UK, Imperial and Gallaher, had each entered into a series of bilateral agreements with 10 different retailers relating to the pricing of tobacco products.  Substantial fines were imposed on the parties, the largest of which was a fine of £112.3 million imposed on Imperial.  Imperial and five of the retailers (the Co-op, Morrisons, Safeway, Asda and Shell) appealed.

As the hearing of the appeals progressed there was growing uncertainty about the OFT’s case.  The OFT’s case in the Decision, its pleadings, and at the start of the hearing was that the infringing agreements contained particular restraints.  However during the OFT’s cross examination of witnesses the nature of the restraints alleged to constitute the infringements became increasingly uncertain.  The CAT directed the OFT to clarify and the OFT then provided a “Refined Case” which it said “reflected part but not the whole of the Decision”.

The CAT concluded that the restraints in the Refined Case were not part of the infringing agreements condemned in the Decision and that the OFT was arguing a very different case from the reasoning set out in its Decision.  The CAT also noted that it was clear that the appellants did not come to the Tribunal thinking that they had to meet a case which included the Refined Case restraints.  The CAT stated that “Given that the OFT has abandoned its defence of the Decision beyond arguing that these two restraints are part of it, that must mean that the Decision must be set aside as against these appellants.”

The OFT then argued that if the Refined Case restraints are not part of the Decision, the CAT could and should allow the hearing of the appeals to continue.  However the CAT stated that “the OFT’s current position amounts in effect to a recognition that none of the findings of infringement in relation to the appellants is adequately supported by the evidence before the Tribunal” and in the circumstances the CAT did not have jurisdiction to continue hearing the appeals.  The CAT stated that even if it did have jurisdiction, it would not exercise its discretion to allow the OFT to change course at that stage in the proceedings.  

In relation to the evidence from witnesses, the OFT supplied only one witness whose evidence at the hearing did not appear to be consistent with the OFT’s findings in the Decision.  The CAT noted that there had been 19 witnesses who had come to the Tribunal to state on oath that the contemporary documents did not bear the meaning attributed to them by the OFT and that none of the restraints in the Decision formed part of the agreement between the manufacturer and the retailer.  Conversely, there was no witness who said that the OFT was right in drawing the inferences it did from the contemporary documents.

The CAT was unanimous in holding that the appeals must therefore be allowed and the Decision quashed in relation to the appellants.

If the OFT wants to continue with its case against the appellants it will need to issue a new statement of objections and a new infringement decision. It will clearly also need to learn from its experience in this case.

Claire Brinn

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