| What you need to know - key takeaways
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- Whilst there is a general duty of equal treatment and fairness upon regulators in the conduct of investigations, there may be circumstances in which departure from those principles is objectively justifiable and rational.
- Parties entering into settlement agreements with regulators do so with their eyes open, and should be prepared to accept the consequences of any subsequent infringement decision, even if that decision is successfully appealed by another party.
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Background
In April 2008, the OFT (predecessor to the Competition and Markets Authority) issued Statements of Objections to 13 parties alleging indirect retail price maintenance in the supply of tobacco products. In June 2008, the Respondents entered into ERAs with the OFT. The ERAs provided for substantial reductions in anticipated penalties in exchange for the Respondents' admission of involvement in the infringements and procedural cooperation.
TM Retail ("TMR") had also entered into an ERA. However, TMR received an assurance from the OFT that, in the event of a successful appeal of an infringement decision by other parties, TMR would receive the benefit of the appeal. The OFT did not offer the same assurance to the Respondents.
Following the OFT's infringement decision in April 2010 (the "Decision"), six parties – Imperial Tobacco and a number of leading retailers - successfully appealed to the Competition Appeal Tribunal (the "CAT"). The Respondents and TMR did not appeal. In 2012, the OFT repaid TMR its penalty "in light of the particular assurances provided", but refused to do so to the Respondents. The Respondents issued claims for judicial review of the OFT's decision not to repay their fines.
The lower courts
The High Court rejected the claims finding that, although the OFT owed the Respondents duties of equal treatment and fairness, the assurance was given to TMR in error. The OFT was objectively justified in not repeating that same error by refusing to repay the Respondents (especially with the use of public funds).
The Court of Appeal, however, found in favour of the Respondents. It took the view that a mistake was not a "trump card" and that due regard must be given to all of the circumstances. It noted that the OFT had the opportunity to withdraw the assurance it gave TMR, but chose to act on that assurance instead. Ultimately, the Court of Appeal held that "the breach of the principle of fair and equal treatment was not objectively justified on the facts of this case."
The Supreme Court's judgment
On 16 May 2018, the Supreme Court overturned the Court of Appeal's judgment. It found that, even if there was a breach of a legitimate expectation of equal treatment in the OFT's failure to give the Respondents the same assurances given to TMR in 2008, that would not in itself provide a basis for reversal of the financial penalties imposed on the Respondents. The assurance to TMR was not made at the Respondents' expense; there was no "zero sum game". The Respondents had accepted the risk that they would not benefit from a successful appeal in order to obtain the benefit of the discount in the amount of the penalty: "they knew what they were doing and accepted it with their eyes open".
The Supreme Court found that the reality of the OFT's position in 2012 was that TMR would have had a strong case to appeal the Decision out of time if the OFT had not honoured its assurance. The same could not be said for the Respondents, who did not receive the same assurance. Therefore, in circumstances where the OFT's "unpalatable alternatives" were to repay penalties to the Respondents using public money, or to risk a likely successful appeal by TMR to the CAT, the OFT had a sufficient basis to justify its approach, notwithstanding that it was discriminatory and breached the general duty of equal treatment. This amounted, in the language of Lord Briggs, to "a powerful objective justification for unequal treatment".
The Supreme Court's judgment is an important contribution to the concepts of equal treatment and fairness under English law. It also illustrates the potential strategic and legal ramifications of entering into ERAs. The Respondents in Gallaher were, ultimately, unable to free-ride off the parties who successfully appealed the OFT's original infringement Decision, or to benefit from assurances given to third parties. The Respondents had also made a parallel application to appeal the OFT's Decision out of time, which reached the Court of Appeal in 2014, but this was also rejected (see our June 2014 newsletter).
With thanks to Emile Abdul-Wahab of Ashurst for his contribution.
