61/11    27 May 2011

The OFT today confirmed that it is not appealing the judgments of the Competition Appeal Tribunal (CAT) in the Construction case. This follows the decision on Tuesday 24 May not to appeal the judgment in the Construction Recruitment Forum (CRF) case. 

Strong enforcement action backed up with significant fines plays an important role in deterring companies from breaching competition law. Many features of these judgments offer strong support for the OFT's enforcement approach.  While the OFT has concerns with aspects of the judgments, including the substantial fine reductions made by the CAT, it does not believe its ability to impose substantial fines in the future and at levels sufficient to achieve effective deterrence is undermined.  For this and other reasons, it does not believe that appeals to the Court of Appeal would represent the best use of public funds.  Instead, it will press ahead with continued vigorous enforcement of the Competition Act.

The OFT's decisions not to appeal have been influenced by the fact that substantial deterrence and change has already been achieved by the two cases. An independent evaluation has shown that the OFT's enforcement action resulted in behavioural change and increasing awareness of competition law in the construction sector, and industry bodies have since launched initiatives to encourage compliance with the law.

The OFT recognises that the judgments raise some issues for it to consider about how it carries out its enforcement work, and in particular how it sets penalties.  It will review its penalty policy, including considering whether changes should be made to its penalties guidance to reinforce its ability to set substantial fines that ensure deterrence, in the light of these judgments and other factors. It will also review its internal penalty setting processes and some of its investigative procedures.

The OFT expects to expand on the reasons behind its decision not to appeal in these cases and its review plans at forthcoming speaking engagements by officials and staff.

Looking ahead, the OFT will continue to focus its resources on high impact enforcement action, with substantial financial penalties and the use of individual sanctions where appropriate, to deter businesses from breaching competition law.

More detail on the Construction case

The OFT's Construction Decision of 21 September 2009 found that 103 parties had infringed competition law through their involvement in illegal anti-competitive bid-rigging activities from 2000 to 2006, mostly in the form of cover pricing. Twenty five parties appealed on matters related to penalty, six of which also related to liability. All of the penalty appeals were successful and the CAT overturned liability findings in relation to four parties.

The OFT has always considered cover pricing to be a serious infringement of competition law, requiring penalties sufficient to ensure deterrence.  It welcomes the CAT's indication that any future instances of cover pricing will be viewed as very serious and will be dealt with severely by the CAT.  In future cases of cover pricing, the OFT is likely to consider it appropriate to impose substantial financial penalties. The OFT will also consider the use of individual sanctions.

Furthermore, the Construction judgments upheld the OFT's approach on a number of important issues relating to the assessment of liability and penalty setting. These include a parent company's liability for the actions of a subsidiary in which it has a part interest, the OFT's approach to penalty discounts in cases where compliance measures have been implemented, and uplifts of fines by the OFT where senior management have been involved in infringements.

More detail on the Construction Recruitment Forum case

The OFT welcomes the CAT's finding in the CRF case that it had correctly assessed the infringements as being a very serious violation of competition law. It notes that the judgment was only about the level of penalties for three companies.

It also notes the CAT's clarification that its findings concerning the relevant turnover figures which should have been used to calculate the penalties were highly specific to the recruitment industry. The OFT will therefore continue to use gross turnover as the usual base figure for penalty calculation.

The OFT welcomes the positive findings in the CRF judgment including in relation to the OFT's approach to penalty discounts in cases where compliance measures have been implemented, and uplifts of fines by the OFT where senior management have been involved in infringements.

NOTES

1. For details of the OFT's Construction decision see press release 'OFT publishes full decision on bid-rigging in the construction industry' (20 November 2009)
2. For details of the OFT's CRF decision see press release 'OFT fines recruitment agencies for a collective boycott and price fixing cartel' (30 September 2009) 
3. The OFT's approach to calculating financial penalties is contained in the published 'OFT's guidance as to the appropriate amount of a penalty' (PDF), which is approved by the Secretary of State at the Department for Business, Industry and Skills.