The OFT’s tobacco decision: Is it dead yet?

Late in 2011, the Office of Fair Trading was forced to concede before the Competition Appeal Tribunal that it could no longer defend the theory of harm contained in its Decision on alleged pricing agreements between tobacco manufacturers and retailers.

However, the OFT refused to simply give up, and instead tried to persuade the CAT to allow it to run a new case. One of the barristers before the CAT (step forward Dinah Rose QC) described the OFT’s new case as “Frankenstein”, a corpse stitched together from components of the abandoned Decision. She invited the CAT to bury the corpse. It duly did so: the OFT was not allowed to run a new case, and the Appellants succeeded in their appeals.

The OFT’s original Decision, however, was not quite dead. The appeals only benefited the Appellants. The other addressees of the Decision, who had chosen not to appeal, were stuck with the original Decision and the whopping fines which accompanied it.

In a judgment handed down today, the CAT has granted Gallaher (one of the big two tobacco manufacturers) and Somerfield (a retailer) permission to appeal against the Decision out of time – thereby allowing them to benefit from the successful appeals. The case contains an interesting discussion of what constitutes “exceptional circumstances” for extending the deadline for appeals.

Gallaher argued that the decision was unclear and misleading. It had apparently thought that the decision did contain something similar to the “Frankenstein” theory of harm which the OFT tried to put forward as a new case. Gallaher also apparently thought that the “Frankenstein” theory was so strong that it wasn’t worth appealing. Those misapprehensions, however, was not treated as “exceptional circumstances”. If regulatory decisions are unclear then that should be a factor to be taken into account in deciding whether to appeal.

The “exceptional circumstances” arose from the fact that Gallaher and Somerfield had entered into early resolution agreements with the OFT. Those agreements didn’t prevent Gallaher or Somerfield from appealing – in broad terms, they simply provided that: (a) Gallaher and Somerfield would cooperate with the OFT and admit to certain conduct; and (b) in return they would be given a discount off their fine, provided that they didn’t appeal against the Decision.

The CAT’s judgment rests on the notion that, in entering into the early resolution agreements, Gallaher and Somerfield had a “legitimate expectation that the OFT would be able to defend (even if not successfully) its Decision on the merits” [93(6)]. To put the point another way, although Gallaher and Somerfield must have known that the OFT might ultimately lose an appeal, they had a legitimate expectation that the evidence underpinning the Decision was robust enough that the OFT would not have to concede the appeal half way through. They entered into the early resolution agreements on the basis of that legitimate expectation. Had they realised that their understanding was incorrect, they would not have entered into the agreements, and they might then have chosen to appeal.

One slight oddity of this finding is that parties who enter into early resolution agreements make admissions about their own conduct. They presumably carry out their own investigations into what they have done, and do not simply rely on an “expectation” that the OFT’s factual case is sufficiently robust to withstand scrutiny. The answer to this point may be that, in this particular case, the agreements which Gallaher and Somerfield were said to be party to were connected to other agreements which they were not party to and could not have known about. Certainly, it would be dangerous to seek to draw any general principles from this case.

In the course of his submissions on behalf of Somerfield, Rhodri Thompson QC remarked that allowing the appeals to be brought out of time would “finally put this whole sorry saga out of its misery”. His underlying assumption is presumably that the OFT will now concede the appeal. However, the OFT has tried to bring the Decision back from the dead before. It remains to be seen whether it will do so again.