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Somerfield and Gallaher to appeal tobacco decision

    • Competition, EU and Trade - Competition e-briefings

    26-06-2013

    On 6 June 2013, the Competition Appeal Tribunal ( “CAT”) refused permission for the Office of Fair Trading (“OFT”) to appeal against a decision extending time for Somerfield and Gallaher to appeal the OFT’s tobacco decision.  This means that Somerfield and Gallaher are permitted to appeal the OFT’s 2010 infringement decision, even though their appeals will have been brought well after the expiration of the usual time limit.

    Background

    On 16 April 2010 the OFT imposed a fine of £225 million on two tobacco manufacturers and ten retailers. Six parties to which the OFT’s decision had related appealed the OFT’s decision to the CAT.  On 12 December 2011 the CAT upheld the appeal and quashed the OFT’s decision in relation to the six appellants. 

    Prior to the OFT’s decision of 16 April 2010, the OFT had entered into early resolution agreements with six companies, one of which was a party to the 2010 appeal allowed by the CAT. In the early resolution agreements, the parties admitted their involvement in the alleged infringing arrangements and agreed to co-operate with the OFT in return for a reduction in the penalty that might otherwise have been imposed. Somerfield and Gallaher were among the parties which entered into the early resolution agreements with the OFT.  

    Somerfield and Gallaher did not originally appeal the OFT decision and an appeal by them became time-barred. However, in July 2012, following the CAT’s 12 December 2011 decision, they applied to the CAT for an extension of time to appeal and on 27 March 2013 they were granted the extension. The CAT held that due to the exceptional circumstances of the case Somerfield and Gallaher should have the appeals’ deadline retroactively extended. The CAT held that the circumstances were “exceptional” because the early resolution agreements were entered into on the basis of a legitimate expectation that there was some sustainable factual underpinning of the case not only against the parties to the agreement, but also against the other participants of the alleged infringement, whereas the 2010 appeal proved that there was no such sustainable factual underpinning.

    The OFT applied to the CAT for permission to appeal this decision, while Somerfield and Gallaher applied to be granted their costs of the applications to extend time. 

    Judgment

    The CAT refused to grant permission for the OFT’s appeal. It held that: 

    • Whether or not ‘exceptional circumstances’ exist is a question over which the CAT is free to exercise its judgment and discretion.  It is not a question of law.  This was not a case of general importance to the wider market, but to the appellant.  The exceptional circumstances related to the precise form of the early resolution agreements between OFT and Somerfield and Gallaher and turned on the specific facts.

     

    • Each of the parties should bear their own costs as even if the OFT had consented to the extension of time the parties would still have had to have persuaded the CAT that the circumstances were exceptional.  In addition, Somerfield and Gallaher had had the same opportunity to appeal the OFT’s decision within the time limit.  Furthermore, the parties had made some submissions during the appeal that had failed and it was reasonable for the OFT to oppose the extension.

    Comment

    The CAT’s decision to extend Somerfield’s and Gallaher’s deadline for appeal is important as it suggests that companies may be able, with the benefit of hindsight, to re-open their settlements and appeal their infringement decisions, as a consequence of successful appeals by other addressees of the decision. 

    However, the CAT emphasised that this was an exceptional case that turned on exceptional circumstances and the standard to show “exceptional” circumstances is a very high one. As a result, companies under investigation should not enter into a settlement lightly, as it cannot be assumed they will be able to unpick it afterwards. Furthermore, a decision to appeal an infringement decision must be made promptly, as the CAT is unlikely to extend the deadline in anything but the most exceptional cases.

    More generally, the decision extends the embarrassment for the OFT following the challenge of its case in the 2010 appeal. The case is also likely to cause both the OFT and the parties to reflect very carefully on the wisdom of entering into early resolution agreements in circumstances where it is uncertain whether all the parties under suspicion will also settle.

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