Tobacco decision: the Court of Appeal emphasises finality

The Court of Appeal yesterday delivered a judgment that should finally draw a line under one of the Office of Fair Trading’s more troublesome cases – and which will presumably bring a great sigh of relief from the Competition and Markets Authority, the body that has now taken over the OFT’s functions.

The background is the OFT’s ill-fated decision on alleged pricing agreements between tobacco manufacturers and retailers. The OFT’s case collapsed on appeal to the Competition Appeal Tribunal (the “CAT”). That appeal, however, was not the end of the story. Two parties who had entered into early resolution agreements with the OFT, in which they admitted their participation in the alleged unlawful agreements, had decided not to appeal to the CAT. When the OFT’s case collapsed, those parties (Gallaher, a tobacco manufacturer, and Somerfield, a retailer) understandably felt that they had rather missed the boat, and so sought permission to appeal against the OFT’s decision out of time.

A year ago, I blogged on the CAT’s decision granting Gallaher and Somerfield an extension of time in which to appeal. The CAT’s judgment rested 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)]. Some observers have rather unkindly summarised the CAT’s decision as being that, whilst Gallaher and Somerfield must have known that there was a chance that the OFT would lose an appeal, nonetheless they had a legitimate expectation that the OFT would not completely cock it up.

The Court of Appeal records at paragraph 30 that no party sought to defend the CAT’s novel use of the legitimate expectations doctrine. However, Gallaher did continue to argue a similar point, namely that it was entitled to assume that, in entering into an early resolution agreement, the OFT had “some proper evidential basis” for its theory of harm. I said in my earlier blog that one oddity of the CAT’s reasoning was that it overlooked the fact that parties who enter into early resolution agreements make admissions about their own conduct, and that they presumably carry out their own investigations into what they have done rather than relying simply on an “expectation” that the OFT’s factual case is robust. The Court of Appeal put the point more forcefully at paragraph 51:

“To put the matter bluntly, the Respondents are grown-up commercial parties. They knew what evidence was relied upon in the Statement of Objections. They knew what evidence was available to them as to their own infringements. They could evaluate both when they concluded the ERAs. It would be quite impossible for the OFT to conduct such an investigation and bring it to a timely conclusion if it were to be taken as representing at the time of an early resolution agreement that it would in the future have a “proper evidential basis” for its decision. Of course, it would be expected to have such a basis, but litigation sometimes proves otherwise. In any event, it may be asked rhetorically: how could it be decided whether the OFT had such an evidential basis? No doubt it thought it did, even though it turned out it did not.”

Apart from the “evidential basis” point, the main argument before the Court of Appeal focused on the apparent disjuncture between the nature of the infringement which Gallaher and Somerfield admitted in their early resolution agreements and the nature of the agreement actually found in the decision. The Court held that, whilst there was a difference between the two, that did not amount to “exceptional circumstances” so as to justify extending time for an appeal, since Gallaher and Somerfield were free to read the decision; to realise that it was not quite what they had admitted; and to appeal in time if so advised. The key consideration was the desirability of finality and legal certainty.

The Court of Appeal recognised that the outcome in this case is somewhat “uncomfortable” – Gallaher and Somerfield are bound by a decision that they committed an infringement, even though that decision crumbled under appeal. But that is always the case when one party chooses not to appeal whereas another succeeds in its appeal. It is unlikely to make any difference to the position of the non-appealing party whether the successful appellant just about secures a victory even though the case could have gone either way, or whether he succeeds in comprehensively defeating the authority’s case.