Up in Smoke:Lessons from Tobacco and BA/Virgin

Ken Macdonald QC

Rhodri Thompson QC, Christopher Brown

and Alex Bailin QC

Chair

Lord Ken Macdonald QC

What went wrong in Tobacco?

Rhodri Thompson QC

What happened?

• Investigation from 2003• SO in 2008 (object and effect)• 6 early resolution cases• Decision in April 2010 (object only)• Case against Tesco abandoned• Some of the largest fines ever imposed by OFT • ITL and 4/5 retailers appeal (including Asda)• Case collapses in November/December 2011• OFT fails in attempt to run a new case at 11th hour

Why did it happen?

• Collapse of OFT’s case on evidence

• Difficulties in the use of leniency/ERA

• Weakness of OFT’s theoretical case

The evidence (1)

• Not a single factual witness supported the OFT’s theoretical case

• No witness statements prepared by OFT for the appeal

• Only witness called by OFT called for XEX by appellants on basis of 2005 statement

• Not a new problem: Premier League, Racecourse Association, MasterCard, Construction

Evidence (2)

• How could this happen:– Lack of independent scrutiny of factual

case?– Undue reliance on fact of leniency/ERA

applications?– Focus on “theory of harm”/economic

analysis?

Leniency/ERA (1)

• Uncertain nature of OFT case– Was it a “hub and spoke” case (retailers

providing information to suppliers)?– Was it a “vertical” or a “horizontal” case?

• Uncertain nature of basis on which leniency had been sought

• Ambivalent role of Tesco/Asda

Leniency/ERA (2)

• Again, not a new problem: e.g. Scottish Milk, Construction

• Inherent difficulty of mixed motives of leniency/ERA applicants

• Lack of credibility of the OFT on appeal shifts the balance for would be applicants

• Tesco appeal in Dairy will be another tough test for the OFT

• Criminal evidence issues further complicate matters

Economic theory (1)

• OFT ultimately opted for “object” case

• Appears to have thought that lowered the evidential burden

• Risky strategy in novel legal/economic area

• No external economist publicly supported OFT Decision

Economic theory (2)

• Inability to establish economic effects after 7 year investigation should have caused alarm bells to ring

• Factual premises for theory of case were intuitively improbable and unsupported by documents or witnesses

• Lack of external ratification pre-Decision another warning sign

What can be done?

• Caution in treatment of leniency evidence, “confessions” under pressure from OFT/for a quiet life

• Witness statements at administrative stage• External ratification of economic theory• External scrutiny of evidential case• “Do not believe your own rhetoric”

Lessons for private parties

• Leniency/ERA:– Major strategic decision – need to front load analysis of

documentary and witness evidence/theory of harm– Risk benefit analysis complicated by criminal exposure of

employees– Need to consider likely responses of other parties

• SO/Appeal– Forensic/analytical approach to evidence and law– Need to deconstruct OFT case and maintain pressure– Further strategic decision whether or not to appeal where situation

changes post-ERA/decision: Construction/Tobacco– Importance of “traditional” advocacy skills of XEX/handling of

witnesses where documentary trail is ambiguous

Tobacco and the CAT’s Jurisdiction:

Lessons for Practitioners

Christopher Brown

CAT’s jurisdiction: the basics

• Sch 8 CA98– Para 2(1) – contents of NoA (also r 8 of CAT rules)– Para 3(1) – CAT “must determine the appeal on the

merits by reference to the grounds of appeal”– Para 3(2) – CAT may confirm or set aside (part of)

the decision and may “(a) remit the matter to the OFT, ...(d) give such directions, or take such other steps, as the OFT could itself have given or taken, or (e) make any other decision which the OFT could itself have made.”

“Merits” appeals: the case law

• Napp – CAT stressing importance of the decision itself: appellants should not be faced with “moving target”. BUT “virtually inevitable that certain aspects of the decision are explored in more detail” before CAT

• Albion – importance of the grounds of appeal

Tobacco –CAT’s judgment

• Two issues: – Was the OFT’s “refined case” part of the Decision?– If not, should the appeals nonetheless proceed?

• CAT’s answers:– Refined case very different from restraints

identified in the Decision– No jurisdiction to continue hearing the appeals;

and in any event CAT would not have exercised discretion in favour (applying Burgess criteria)

Tobacco – CAT’s judgment (2)

• Key messages:– There must be a “link or bridge” in the reasoning set out in

decision between the findings of fact and the conclusion as to infringement (¶ 46)

– Napp “not authority for the proposition that wherever evidence emerges during the trial that indicates that an infringement of the competition rules has been committed, the [CAT] is entitled to make a finding to that effect” (¶ 67)

– The CAT’s powers under Sch 8, para 3(2) do not extend the scope of CAT’s jurisdiction under para 3(1) (¶ 75) – i.e. powers are wider in an appeal under s 47 CA98

“Merits”: lessons for practitioners

• Tight drafting of notice of appeal

• Getting a grip of the facts – and their relationship to the theory of harm

• Examining witnesses

• Rebutting inferences drawn by OFT

Tobacco and the reform agenda

• Advert for a prosecutorial system?

• Structure of CMA – “fresh look” at the evidence at SO stage?

• Importance of CAT’s independent, merits-based jurisdiction

Criminal Cartels: The Burning Issues

Alex Bailin QC

Introduction

OFT has not successfully prosecuted any contested criminal trial in 9y

Marine Hose is only conviction (disguised prisoner transfer arrangement)

OFT currently has no public criminal cartel investigations

OFT gained last-minute reprieve from ECA

Doing away with dishonesty

“Criminal prosecution will be reserved for really hardcore cartels with evidence of deep dishonesty”

Consultation paper has resulted in: removal of dishonesty from s188 offence carve out for cartel arrangements which are

published in advance Offence reformed even though no prosecution failed

on dishonesty grounds Previously unilateral dishonesty was required (BA in

CA)

Leniency problems

Consultation paper seeks greater clarity and predictability

Helpful but key areas left unclear: confession of dishonesty required from

immunised/leniency individual? waiver of LPP required by immunised individual? Disclosure addressed but no clear acceptance that

what happened in BA was fundamentally wrong

Waiver of LPP

Not required by civil leniency applicants All criminal leniency applicants must be prepared to

waive LPP Otherwise not complete and continuous co-operation Waived material will be disclosable (BA 7.12.09

ruling, applied by CA in 2010) If no pre-immunity evidence of cartel admission,

possible to have fair trial without waiver?

Consistency issue

Although not an element of the s188 offence, evidence of whether the alleged agreement could or did have an appreciable anti-competitive effect is relevant to dishonesty (BA 24.7.09 ruling)

i.e. competition law ‘defence’ to s188 criminal offence Also relevant to disclosure

Conclusion

OFT is an inexperienced prosecutor with no proven track record

Effective leniency/immunity depends on fear of prosecution

Need convictions without use of leniency c.f. FSA use of co-operating accomplices,

participating informants, insiders Defendant may argue s/he is only member of cartel

honest enough not to admit dishonesty

Further Reading

Binning, ‘A lenient approach’ – Competition Law Insight (24 Jan 2012)

Bailin, Doing away with dishonesty [2011] 3 Comp Law J 169 (!)

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