High Court confirms finality of tobacco settlement in failed OFT case

A party that had paid reduced penalties through the UK's early resolution procedure could not appeal the penalties after the competition authority's case had collapsed and following successful appeals by other parties to the investigation.

Somerfield and Gallaher entered into a settlement agreement with the OFT by way of resolution of its investigation under Chapter I of the UK Competition Act 1998.  The CMA's predecessor had alleged that the tobacco manufacturers had agreed with retailers to limit discounting and had indirectly communicated with each other through the retailers.

Six of the 13 parties who were alleged to have participated in the infringement agreed to settle the case in 2008 and paid reduced penalties.  At the time there was very limited guidance on the settlement procedure.

A number of companies (not including Somerfield and Gallaher) successfully appealed the OFT's decision to the Competition Appeal Tribunal in 2011.  The OFT agreed to refund TM Retail £2.6 million because the settlement had assured it that other companies would not successfully challenge the OFT's decision.  The Court of Appeal overruled the CAT's decision to give Somerfield and Gallaher leave to file a late appeal because they argued that they had been treated unfairly.  Gallaher and Somerfield argued that the OFT had breached its duty of equal treatment and fairness by paying a refund to TM Retail. 

The High Court refused to reopen the settlement.  The judgment may be regarded as an endorsement of the finality of settlement or early resolution of competition investigations.  The companies had admitted the infringement and received expert legal advice.  The Court refused to accept their argument that they were also entitled to benefit from the successful appeals brought by the other parties.  However, the Court also criticised two named OFT officials for accepting the argument of TM Retail that a successful appeal on liability by other parties could have an effect on the position of non-appealing settling parties and giving assurance to that effect.  The CMA is considering the implications of the judgment for its ongoing enforcement practice.  The case will no doubt also prompt some soul searching amongst officials at the UK regulators given the criticism meted out in this case to named individuals.

Gallaher v Competition and Markets Authority [2015] EWHC 84 (Admin)

Ireland’s cartel immunity programme now open to ringleaders

Ireland has removed a restriction which prevented cartel ringleaders from receiving immunity in return for their cooperation with a cartel investigation.  The move announced on 22 January 2015 is expected to bring about more and better immunity applications.  However, the approach on this aspect differs from the EU model where full immunity is not available for ringleaders. 

While the approach might initially seem a little peculiar it needs to be understood against the very specific features of Ireland’s legal and institutional framework for the investigation and prosecution of cartels.  Apart from merger cases, the competition authority is an investigative body rather than a decision-maker. The DPP prosecutes hardcore cartels which operate covertly.  Cartel members must apply to the competition authority but immunity (if available) is granted by the DPP. 

Although the Irish regime has its idiosyncrasies it seems to have worked reasonably well so far.  I’d be slow to judge the current reform without some time to see how the new approach beds down in practice.  The concept of a ‘ringleader’ or ‘coercer’  has always struck me as somewhat amorphous.  There can be cases where the conspirators take it in turns to rotate leadership to try to disqualify their members from being eligible for immunity.  Where you face a prison sentence of 10 years (double the jail -time under the UK rules) an application for immunity carries a risk.  This development might then be a practical approach to bolster the incentives to come forward by removing one dilemma over eligibility.

 

Payment Systems Abuse of Dominance - Indian Competition Commission Closes Case

The Competition Commission of India (CCI) has closed an abuse of dominance investigation against ACI Worldwide Solutions on the grounds that there was inadequate evidence to show that the electronic payments company was dominant.  The case will be of interest to participants in the payments sector internationally against mounting regulatory scrutiny of the industry.

The CCI overturned a decision of its Director General (DG) (the investigating arm of the CCI) which found that ACI had abused its dominant position.  Apparently 77 per cent of India’s ATMs rely on the US-based ACI’s software.  A rival had claimed that ACI was using its dominant position in the upstream market for electronic payment systems to exclude competitors.  It claimed that ACI had imposed exclusivity arrangements on banks preventing or restricting them from using software of ACI’s competitors. 

However, the CCI found that the DG’s market definition was flawed and failed to take into account non-bank customers that use ACI software.  The DG also failed to take into account alternatives to electronic payments including mobile banking and cross-border money transfers.  Describing the DG’s market definition based on supply to a limited class of user (i.e. banks) as “fallacious” the CCI rejected the claim that ACI was dominant in the relevant market and did not consider the question of abuse. 

The decision of the CCI contrasts with that of the dissenting member SL Bunker who recommended a fine of 45 million rupees (equivalent to EUR 625,000) and which would represent 5 per cent of ACI’s turnover. 

The case is symptomatic of the growing interest  by regulators around the world in competition and innovation in the payments industry.  On 1 April 2014, the Payment Systems Regulator (PSR) was established as the regulator for payment systems in the UK. The PSR is a subsidiary of the Financial Conduct Authority with its own statutory objectives and board.  In addition to its regulatory remit the PSR has been given concurrent competition law powers under the UK Competition Act 1998 (and Enterprise Act 2002) in relation to participation in payment systems.  As of 1 April 2015 it will be able to apply the UK and EU competition law prohibitions on restrictive agreements and abuse of a dominant position in the UK payments industry.  In contrast with the CCI in the Indian payments context, the PSR will have a number of regulatory tools at its disposal in addition to competition law.  These include:  to give a direction or to impose a requirement on regulated participants; to require the operator a regulated payment system or a payment services  provider with direct access to grant access to that payment system; to change the fees, charges, terms and conditions of an agreement relating to a regulated payment system; and (controversially) to require the disposal of an interest in the operator of a regulated payment system. 

Suzanne Rab is the author of “Indian Competition Law, an International Perspective” (first published by Wolters Kluwer, May 2012; with a supplement of cartel regulation published in January 2013). The book is the first-of-its-kind international comparative analysis of the Competition Act 2002 published contemporaneously with the coming into force of Indian competition law and merger control.

Suzanne is also co-author of "Media Ownership and Control: Law, Economics and Policy in an Indian and International Context" (Hart Studies in Competition Law, 2014).

End of the line for Eurotunnel ferry service as CAT scuppers appeal

Eurotunnel began its cross-Channel ferry service in August 2012 using assets acquired from Sea France after its liquidation in 2011.  The transaction was blocked by the Competition Commission in 2013 because it gave Eurotunnel too strong a presence in the cross-channel transportation market.  In its 9 January 2015 judgment the Competition Appeal Tribunal dismissed Eurotunnel’s appeal against the decision by the CMA to prohibit the deal for a second time. The judgment is significant when viewed against a background of trades in distressed assets in Europe and internationally.  It merits a careful reading for parties seeking to realise value from company liquidations.   

The CAT has confirmed that a bare acquisition of assets can be subject to UK merger control and even when such assets are purchased from a liquidated company.  There is no necessity for the transfer of a customer base in order for a transaction to be considered as an “enterprise” under UK merger control. 

The outcome is in marked contrast to a decision of the French Competition Council which cleared the transaction subject to commitments in 2012. 

While the CAT’s judgment has been hailed as a victory for the CMA it is not an unequivocal support for an “expansive” approach to UK merger control jurisdiction.  The CAT saw no reason to overturn the decision of the CMA to take jurisdiction over the case and block the merger outright.  However, it made a point of saying that the CMA’s belief that the term “enterprise” should be given an expansive meaning was “misplaced”.  The CMA will want to be cautious before asserting jurisdiction over asset purchases in future cases.  This does not mean that merging parties and insolvency practitioners should assume that an acquisition of distressed assets will escape merger control scrutiny.  It does require them to consider carefully when the acquisition of assets that are subject to an insolvency procedure properly represent an enterprise for UK merger control purposes.  In most instances, there will still be value and goodwill attached to the assets as a trading enterprise and which would support the transaction being classified as a merger under the UK rules.  However, the CAT has made it clear that this will not be the conclusion in every case.  

Groupe Eurotunnel S.A. and SCOP v Competition and Markets Authority [2015] CAT 1, judgment of 9 January 2015

Competition Commission of India dismisses bank cartel complaint over gold backed security

India’s competition regulator (the CCI) has rejected a claim that 12 of the country’s biggest banks colluded over loans secured against gold.  The case comes at a time when competition authorities internationally are intensifying their competition and regulatory probes into financial services. 

The complaint was made by a non-banking financial company, Muthoot Mercantile.  It alleged that the banks, including some of the largest lenders conspired to offer their own loans at a “throwaway interest rate” of 4 per cent in an attempt to drive it and other smaller companies out of the market.

The complainant maintained that the banks – including the State Bank of India - managed to offer the low rates by classifying the loans as agricultural loans which were eligible for a reduction in the interest rate under a Reserve Bank scheme.

The CCI rejected the complaint stating that the complainant had “not placed on record any material which is indicative of any collusion or concerted practice” by the banks.

Although the complaint was not substantiated the case is of interest for three main reasons:

First, it confirms that Indian competition law – like its EU counterpart - applies to state-owned or affiliated enterprises such as the State Bank provided that they are engaged in economic activity (albeit in this case the CCI rejected the complaint).

Second, competition law can apply in sectors that are highly regulated. The case illustrates a familiar trend where competition and sector authorities may be called upon to examine the same practices.  The banks were apparently warned over their actions by the Reserve Bank back in 2012.

Third, the CCI appears to be taking a more measured approach to complaints raising allegations of cartelisation.  In its order the CCI notes that “parallel behaviour needs to be substantiated with the additional evidence or the plus factors to bring it into the ambit of  prohibited anti-competitive agreements”.  The case is a contrast with the CCI’s decision in the cement cartel case in June 2012 where it fined eleven cement manufacturers and a trade association INR 6300 crore for alleged cartelisation of the cement market in India.  The case has been criticised as being founded on purely circumstantial evidence of parallel behaviour.  The decision remains subject to appeal.

 

The CCI’s rejection of the complaint on the grounds of lack of evidence does not necessarily mean any let up in its enforcement activities.  But it does put into focus the CCI’s relative lack of success in implementation of its leniency policy and the absence of any established settlement policy.  Experience in other jurisdictions has shown that evidence provided by a leniency applicant has been the single most effective tool to root out anti-competitive  practices.  In a UK case in March 2010, on facts which have an uncanny resemblance with the allegations in the Indian case, the Office of Fair Trading (OFT) announced that Royal Bank of Scotland (RBS) agreed to pay a fine of £28.59 million following admissions that it had infringed UK competition law by disclosing confidential future pricing information to Barclays Bank.  Barclays as the leniency applicant escaped a fine.  The lesson is simple:  the CCI may struggle to obtain robust evidence of cartelisation unless and until it offers and implements a predictable policy over leniency.  It is now over 5 years since the CCI’s leniency policy went live and so far there has been no reported case of leniency being granted.

Suzanne Rab is the author of “Indian Competition Law, an International Perspective” (first published by Wolters Kluwer, May 2012; with a supplement of cartel regulation published in January 2013). The book is the first-of-its-kind international comparative analysis of the Competition Act 2002 published contemporaneously with the coming into force of Indian competition law and merger control.

Suzanne is also co-author of "Media Ownership and Control: Law, Economics and Policy in an Indian and International Context" (Hart Studies in Competition Law, 2014).