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2 September 2002
The OFT has decided not to appeal the Competition Commission Appeal Tribunal's (CCAT) ruling in the BetterCare case.
The judgment found that purchasing by a public body, in certain circumstances, is an economic activity carried out by an undertaking and therefore may be subject to the provisions of the Competition Act 1998. This point of law has not previously been considered by the European Courts.
In deciding not to appeal, the OFT agrees with the view that, with more public services being provided by the market, the disciplines of the market place, including competition law, should apply. The OFT's role is to make markets work well for consumers and this includes markets that involve public services.
The judgment in BetterCare does not say that all purchasing activity by public bodies is the activity of an undertaking. The OFT notes that each case needs to be considered in the context of its particular facts.
The OFT believes that the large majority of public sector purchasing transactions will not raise substantial questions under the Competition Act, even where the buyer is acting as an undertaking. In broad terms the Act is concerned only with anti-competitive agreements and abuse of dominant market positions (see note 4).
In deciding not to appeal, the OFT also had in mind that the European Courts are likely to rule soon on similar issues. Judgment in FENIN (see note 5) is expected before the spring of 2003. This may assist in clarifying further the test as to whether a body is an undertaking for the purposes of the Act.
The OFT will now reconsider the original complaint made by BetterCare Group Limited about the alleged anti-competitive conduct of North & West Belfast Health and Social Services Trust.
1. BetterCare (who run private care homes) complained to the OFT that North & West Belfast Health and Social Services Trust (N&W), BetterCare's main customer in the north and west Belfast area, was abusing a dominant position. BetterCare said that N&W offered unfairly low prices and unfair terms in its purchases from BetterCare of residential and nursing care.
The OFT rejected BetterCare's complaint on the grounds that N&W when purchasing residential and nursing care for the disadvantaged in society using monies raised by taxation was not acting as an undertaking. The Competition Act 1998 only applies to undertakings.
However, the CCAT took a wider view of the Act in relation to the purchasing activities of a public body in its judgment. It confirmed that N&W is engaging in economic activities (and is therefore an undertaking) in running its statutory residential homes and in contracting out the supply of nursing and residential care to independent providers.
2. The CCAT handed down its judgment in BetterCare Group Limited v Director General of Fair Trading on 1 August 2002. The judgment is available from the CCAT website at www.competition-commission.org.uk
3. The Act prohibits anti-competitive agreements between, and the anti-competitive conduct of, 'undertakings'. Under section 60 of the Act, the word 'undertaking' must be interpreted in the light of the case law of the European Court of Justice and Court of First Instance (together, 'the European Courts').
4. The Chapter I prohibition in the Act prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which have the object or effect of appreciably preventing, restricting or distorting competition in the United Kingdom (or a part thereof). The Chapter II prohibition prohibits any conduct by one or more undertakings which amounts to the abuse of a dominant position in a market in the United Kingdom (or a part thereof). Both the Chapter I and II prohibitions also require an effect on trade within the United Kingdom (or a part thereof). There are exclusions from both prohibitions. The OFT has to consider whether, amongst other things, the exclusions for services of general economic interest and for compliance with legal requirements are relevant in each case involving public procurement (see Schedule 3, paragraphs 4 and 5). The Chapter II prohibition also does not apply to conduct which is capable of objective justification (see paragraph 211 of the judgment of the CCAT in BetterCare).
5. Judgment is expected before spring 2003 from the Court of First Instance in a case concerning the purchase of medical supplies by the Spanish national public health body (Case T-319/99 FENIN v European Commission). The European Court of Justice is also currently considering a reference from the German courts under Article 234 EC which involves the issue of whether statutory sickness funds are acting as undertakings when they fix the highest price which they are prepared to pay for medical products (Joined Cases C-264/01, C-306/01, C-354/01 and C-355/01 AOK Bundesverband and others). However, judgment in this case is not expected soon.
6. In this statement the functions of the Director General of Fair Trading (DGFT) under the Act are for simplicity described as the functions of 'the OFT'. The Enterprise Bill proposes to replace the office of the DGFT with the OFT, to which would be transferred the DGFT's functions.
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