Supermarkets, hospitals, ferry services and dairy sector receive rare exclusion orders to permit Covid-19 coordination

As the Covid-19 emergency escalates, governments and businesses are dealing with a host of unprecedented challenges. The key message from competition regulators around the world, including the UK Competition and Markets Authority ("CMA"), is that whilst competition law is very much still in force, it should not act as a barrier to steps which are necessary to alleviate urgent situations relating to Covid-19. In this connection, on 27 March 2020, the UK government made three temporary exclusion orders under the UK Competition Act 1998 ("CA98"), in relation to cooperation agreements between competing groceries providers, health services providers in England, and the Isle of Wight ferry routes, and a further exclusion order regarding health services on Wales on 20 April, and also announced an exclusion in relation to the dairy sector on 17 April.

As mentioned above, whilst antitrust law is very much still in force, there are some exclusions under UK competition law. In particular, the CA98 provides that the government (specifically, the relevant Secretary of State), can issue an order disapplying prohibitions to specified agreements or conduct if "there are exceptional and compelling reasons of public policy" to do so (Schedule 3(7)).

In this connection, the UK government has issued five exclusions to specific sectors, relating to particular types of conduct. These are summarised in the table below:

An exclusion of this type is different from a potential exemption (under section 9 CA98) from the prohibition on agreements restrictive of competition. For example:

• Exclusions are granted by the Secretary of State, whereas businesses are required to self-assess whether their conduct falls within the section 9 exemption. Exemptions will only apply if the section 9 cumulative criteria is met. In particular, if conduct / a restriction under Chapter I:
  • contributes to improving production or distribution, or promotes technical or economic progress;
  • allows consumers a fair share of the resulting benefit;
  • is indispensable to attain the objectives; and
  • does not result in the possibility of eliminating competition in a substantial part of the products / services in question.
• Exemptions are technically only applicable to the Chapter I prohibition against anticompetitive agreements. Exclusion orders, however, can also be applied to the Chapter II prohibition against abuse of dominance (although the March 2020 orders only disapply Chapter I).
• Whilst UK exclusions are capable of disapplying Chapter I and II of the Competition Act 1998, they do not disapply the EU equivalents of Article 101 and 102 TFEU. As a general rule, there are therefore no parallel exclusions for conduct which has an effect on trade between EU Member States (but see our article on the European Commission's exceptional derogation regarding milk, flowers and potatoes).  In such Article 101 cases, individual self-assessment as to the application of the individual exemption criteria under Article 101(3) TFEU is required. 

Businesses are required to self-assess whether their conduct falls within the section 9 exemption. To assist this assessment, the CMA issued guidance on 25 March 2020 setting out its approach to business cooperation in response to Covid-19, and in particular how the CMA intends to apply the legal criteria for exemption in the specific circumstances of this crisis. While this guidance is helpful and should provide businesses with some comfort, it is noted that this does not bind other regulators (including the European Commission), or protect parties from third party damages claims if an incorrect self-assessment is carried out.

For further details on exclusions and exemption under UK competition law, and on the CMA's exemption guidance of 25 March 2020, see our briefing on the Impact of Covid-19: UK Competition law, potential exclusions and exemption.

With thanks to Danica Barley, Senior Associate for her contribution.