On 24 March 2011, the Competition Appeal Tribunal (the 'CAT') handed down judgment on six further appeals against the level of fines imposed by the OFT on construction firms for engaging in cover pricing. This follows similar outcomes in the decision of 11 March 2011 on six earlier appeals (see Community Week issue 513) and a separate decision on 22 March 2011 relating to one other appellant.
The appeals follow a lengthy OFT investigation started in 2004 which found that cover pricing and compensation payments were endemic in the construction industry. Cover pricing is a type of bid-rigging where a company that does not wish to win a particular contract, but wishes to maintain the impression that it is interested in winning subsequent tenders, submits a bid higher than a competing party, having first discussed bid levels with that competing party. In September 2010, the OFT fined 103 companies for such illegal practices, 25 of whom subsequently filed appeals, mainly challenging the level of the fines imposed, rather than liability.
Following its earlier decisions, the CAT found that the OFT had erred in basing its fines on the 'relevant turnover' in the year prior to the infringement decision; the OFT should have used the year prior to when the infringements took place. The CAT also accepted evidence that the high turnover but low profit margin nature of the industry should have been reflected by the OFT in its calculation.
As before, the CAT found that the OFT had misapplied the 'Minimum Deterrence Threshold' doctrine by adopting a mechanistic approach and imposing fines at too high a level. The CAT noted, as a mitigating point, that cover pricing was, at the time, widely seen as legitimate in the construction industry prior to the OFT investigation (although warned that any future infringement would not be treated so leniently).
The total fines in the six cases decided on 24 March 2011 were reduced from £15.5m to £4.2m. This compares with the 90% reduction in fines resulting from the 11 March 2011 decision. In the earlier decision, the CAT accepted the appellants' argument that the OFT's starting point for calculating fines of 5% of turnover was too high and substituted 3.5%. As none of the appellants in the later decision raised this argument, the CAT did not reassess the 5% figure, though stated it would have used a lower figure had the argument been raised.
This series of appeals may offer encouragement to companies in challenging the quantum of fines imposed for infringement of UK competition law. However, the CAT has extended the time period for the OFT to appeal all of these decisions until one month after judgment has been notified in the final appeal.
To view Community Week, Issue 515 – 1 April 2011 in full, click here.
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.
