CMA successfully defends Tobacco Products judicial review claims

26/01/15

Gallaher and Somerfield -v- OFT

The Competition and Markets Authority has successfully defended judicial review claims by four companies in the Gallaher and Somerfield/Co-op groups arising out of fines totalling £54 million imposed on them in April 2010 by the CMA’s predecessor, the OFT, for infringements of Chapter I of the Competition Act 1998 in relation to the pricing of tobacco products.

During the OFT’s investigation, Gallaher and Somerfield entered into Early Resolution Agreements (“ERAs”) in which they admitted the infringements alleged, and agreed to co-operate with the OFT, in return for reduced penalties.  The terms of the ERAs entitled Gallaher and Somerfield to withdraw from them if, having seen the OFT’s ultimate Tobacco Decision, they wished to appeal to the CAT.  However, they did not appeal.

Several other addressees of the OFT’s Decision, including Imperial Tobacco, did appeal to the CAT and were successful (see News Item dated 12/12/11 here).  Gallaher and Somerfield then applied to the CAT for permission to appeal out of time, relying on what they claimed were the unusual circumstances of the case.  These applications ultimately failed in the Court of Appeal (see News Item dated 9/4/14 here).

During 2012 another retailer, TM Retail, which also had been the subject of an infringement finding in the Tobacco Decision but had not appealed, approached the OFT seeking recovery of the penalty it had paid.  TM Retail relied on statements made by the OFT during the ERA discussions with it in 2008, which TM Retail said meant it would benefit from any successful appeal by a third party.  Having investigated the evidence, the OFT settled with TM Retail on terms which included payment to TM Retail of a sum equal to the penalty it had paid.

Gallaher and Somerfield applied for judicial review on the basis that fairness and/or equal treatment meant that they should be put in the same position as TM Retail.  Blake J granted permission to proceed.  The claims were heard by Collins J in November 2014, who dismissed them today’s judgment. 

In summary, Collins J found that:-

(1)  The OFT’s dealings with TM Retail in 2008 involved an assurance that it would benefit from any successful third party appeal.

(2)  That assurance was a material incentive to enter into an ERA, and fairness required it to have been disclosed to other ERA parties such as Gallaher and Somerfield, even though they had not requested any such assurance themselves.

(3)  However, the assurance given was inconsistent with the principles set out in AssiDomän Kraft Products v Commission (Case C-310/97P) (‘Wood Pulp II’) about an appeal’s lack of any effect vis a vis non-appellants, and with principles of certainty and finality.  Giving the assurance had been an error, made through inadvertence.

(4)  As Jacob J had stated in Customs and Excise Commissions v National Westminster Bank Plc [2003] STC 1072, it was well within the ambit of objective justification to say that mistakes need not be perpetuated where public funds were concerned.  It was therefore objectively justifiable for the OFT to have declined to make payments to Gallaher and Somerfield similar to the payment made to TM Retail.

The judgment is here.