Fairness between infringers: the need for consistency in punishments

Competition lawyers may want to brush up on their criminal law. The Court of Appeal’s recent judgment in Interclass Holdings v OFT [2012] EWCA Civ 1056 borrows criminal law principles to guide the calculation of penalties imposed.

The appeal was a further instalment in the litigation arising from the OFT’s largest ever investigation under the Competition Act 1998 concerning collusive tendering practices in the construction industry. A round of litigation before the Tribunal had resulted in substantial reductions in the fines imposed by the OFT on many of the appellant undertakings. This further appeal by Interclass concerned the application by the Tribunal of a 100 per cent uplift to the provisional fine payable by Interclass with the intention of adequately deterring both Interclass and other undertakings from committing infringements in the future.

The Court of Appeal accepted that the Tribunal had correctly followed a staged approach to the calculation of the penalty, beginning with starting figures based on the seriousness of the infringements and then proceeding to consider whether an uplift should be applied for deterrence.

However, the Court borrowed two important concepts from criminal law. The first is that, in considering deterrence, the important issue is the “cumulative level of penalty” being applied to several infringements – in other words, the size of the total penalty as a percentage of the undertaking’s turnover. This was said to be the same as in criminal cases, where, “it is the headline figure that matters” ([65]).

The second is that, in cases with multiple infringers, it is necessary to “cross-check” the penalty with penalties imposed on the other infringers, to make sure nothing has “gone wrong with the process”. Again, this was said to be “not dissimilar” to the approach in cases concerning disparities in criminal sentences ([71]).

The Court found that in this case the Tribunal had applied an uplift that produced a figure that was out of line with the level of fines that the Tribunal thought necessary to act as a deterrent in similar cases. The penalty imposed on Interclass was equivalent to 1.3% of group turnover whereas in most similar cases fines of between 0.1% and 0.37% of turnover had been imposed. Nothing in the Tribunal’s reasoning had indicated that it was necessary for Interclass to be treated more harshly than other undertakings, leading the Court of Appeal to conclude that the Tribunal’s discretion had not been exercised on a proper and consistent basis. The Court noted that it was common practice in appeals against criminal sentences to reduce a sentence on the grounds of disparity.

The judgment is likely to be most significant for those caught up in sector-wide investigations involving infringements by multiple undertakings. Whilst the ruling may add another string to the bow of cartelists and other competition law infringers seeking to challenge penalties imposed by the OFT, it is unlikely to seriously impede the regulator or Tribunal so long as the virtue of consistency is reasonably observed

Indeed, in allowing the appeal of Interclass, the Court emphasised that appeals against penalties imposed by the specialist Tribunal were unlikely to be successful unless it could be shown that the Tribunal had erred in principle or that, looked at overall, the penalties imposed were clearly disproportionate or discriminatory.

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Filed under Agreements, Penalties

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