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OFT slated over tobacco fines

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The OFT is in hangover mode after a year blighted by the Competition ­Appeal Tribunal (CAT). Any hope it had of restoring its reputation faded in December after its price-­fixing case against tobacco manufacturers and retailers fell apart.
In March 2011 the Government ­unveiled plans to merge the Competition Commission and OFT to create the Competition and Markets ­Authority (CMA) (The Lawyer, 16 March 2011). The consultation closed in June and a working group is currently considering the way forward.

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This provides a unique opportunity for the OFT to shake itself down and look at why it has suffered a ­succession of losses. After all, in the age of austerity spending money on failed cases is unacceptable.

If the appellants in Imperial ­Tobacco & Ors v OFT (see box, below) choose to pursue an indemnified damages case against the OFT, or those that settled attempt to reopen negotiations, it could cost millions.

Witness preparation

The central issue with the OFT’s case was that its defence did not stack up.

Hogan Lovells partner Suyong Kim, who represented appellants Morrisons and Safeway, says the ­collapse of the case partway through the trial was “pretty dramatic”, adding: “The OFT’s case was factually unfounded and legally flawed.”
According to several sources, the due diligence on the OFT’s single ­witness, Ms Bayley, was lacking and its case management was haphazard.

Burges Salmon head of competition Laura Claydon says: “There needs to be much tougher scrutiny internally, and at an early stage, of the evidence the OFT seeks to rely upon during its administrative phase, especially witness evidence.”
Critics say the OFT has taken on too many roles. As policer and ­enforcer of competition legislation it has, in effect, become judge and jury of the competition world.

One competition lawyer says: “What they’re lacking is an objective viewpoint, somebody who isn’t so closely involved with the case.”

The CAT was also critical of the OFT’s witness preparation. According to the judgment, the OFT witness had not been asked to review her ­witness statement since she first ­provided it in 2005. The tribunal said that, had her evidence been tested “more stringently”, and had the OFT “updated her witness statement for the purpose of the appeals, it might have become clear sooner that her evidence as to how the agreement ­between Sainsbury’s and Imperial worked did not appear to be consistent with the OFT’s findings in the decision [to fine]”.

Stevens & Bolton head of competition Gustaf Duhs says it is not the first time the OFT’s witness evidence has been called into question, adding: “The OFT must take these points on board and seek to cut down the length of each investigation in order to improve its efficacy.”

Speedy response

Ashurst competition partner Euan Burrows, who along with competition head Nigel Parr represented ­Imperial, comments: “The tribunal’s findings, which rejected the OFT’s ­allegations on the basis of evidence from no fewer than 19 witnesses of fact, provide the clearest possible example of the need for a full merits review for OFT infringement appeals. Judicial review, whether on a full or ordinary basis, provides no substitute for that essential safeguard.”

Burrows is not alone in wanting a new CAT procedure that would allow such long-running cases to be heard expeditiously, with many competition lawyers considering it to be the most pressing matter facing them.

Burrows says the case shows “further support for the argument that a fair and expeditious procedure might be better served if the OFT’s role was redefined to focus upon an investigative and prosecutorial function”.

Supermarket sweep

This year Tesco will appeal the £10.4m fine from the OFT in relation to a ’hub and spoke’ competition ­infringement in the dairy invest-­igation, the OFT’s longest-running Competition Act investigation (see top cases feature, page 30).

Tesco has drafted in Freshfields Bruckhaus Deringer heavyweights Paul Lomas and Deirdre Trapp, who have instructed Blackstone Chambers’ Dinah Rose QC.

Fundamental changes are needed to the OFT’s enforcement strategy. There is a drive at the High Court and Court of Appeal to encourage cases to be heard more speedily by being managed properly. But the CAT can only follow suit if the parties it serves are more efficient, putting the ­necessary changes into the hands of the OFT.

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