BA and Virgin's kiss and tell
$300 million (the fine imposed upon BA by the US Department of Justice last week) is a very large number, but many would think of it as another example of the American legal system coming up with huge damages claims which “wouldn’t happen over here”. Well happen it has, with the Office of Fair Trading imposing its own fine of over £120m (the biggest fine it has ever imposed) on BA after it admitted collusion with Virgin Atlantic over the level of fuel surcharges. Philip Collins, Chairman of the OFT stated this “serves to remind companies of the substantial risks involved if they are found to engage in such behaviour” and added that the level of fine would “send an important message” to businesses about the OFT’s intention to enforce the law.
So what is the law and what can the OFT do to enforce it?
The Competition Act 1998 sets out a basic prohibition of any agreements or concerted practices which may affect trade within the UK and have as their object or effect prevention, restriction or distortion of competition within the UK – similar rules apply under EU legislation for any such activities affecting trade within the EU.
Price fixing is given as a specific example and so the discussions which took place between BA and Virgin Atlantic over level of surcharges which they would impose following fuel cost increases is a clear breach of the rules. But such arrangements are by their very nature kept secret. So how can the prohibition ever be enforced?
Virgin Atlantic’s decision to go to the OFT to kiss and tell has proved a very wise move for them, as in return they have been granted immunity and so avoided a very hefty fine – the OFT’s policy is to give whistleblowers immunity given the difficulty they would otherwise face in finding out about such activities. But even if OFT hadn’t been given this clear lead, they might have had their suspicions of increases occurring at the same time and of the same amounts. Now there can, of course, be perfectly reasonable explanations for this apparent “collusion” – if you see your competitor making a price rise which will stick, why not do it yourself? The alternative is to undercut, but it’s a balancing act of higher profit against increased sales at a lower profit margin.
But even without Virgin’s whistle blowing, the OFT could have carried out its own investigations. Where it has reasonable grounds for suspecting a breach (which could arise from a number of sources – disaffected (or worried!) members of a cartel, employees or even members of the public making a complaint) – the OFT can carry out an investigation exercising powers which you might think relate more to terrorist activity or drugs busts.
Without a warrant, the OFT’s officers can enter a business’ premises and means of transport and if entry is refused fines can be imposed and steps taken to force entry. The power of entry does not extend to an individual’s home, or to the premises of the business’ external advisers – lawyers, bankers or accountants – although they could all be subject to separate inspection. In practice, if documents are located outside the business’ premises, the inspectors can require someone to produce them.
If you are caught up in an inspection, you are entitled to contact your legal advisers and the inspecting officer should grant a request to wait a reasonable time for legal advisers to arrive before the inspection continues, but only if he considers it appropriate to do so.
The inspectors are entitled to examine all relevant documents including books and records, travel tickets, diaries, records of telephone calls made and expense claims, as well as computer records and electronically stored documents. They have the right to see the contents of any piece of furniture they indicate and are entitled to be given access to computer networks.
Any specific documents and records requested by the inspectors must be produced, but you are only obliged to permit access to those which fall within the scope of the investigation as set out in the OFT’s authorisation. An exemption to all this is privileged communications – those between you and your professional legal adviser – but this does not extend to in-house counsel.
If you are caught up in an investigation, you will know about it!
Breach of the anti-competition rules is not itself a criminal offence, but the powers of investigation are similar to those available to the police investigating serious crime – and as we can see from the size of the fine imposed on BA, the OFT is keen to show its claws.
FOR FURTHER INFORMATION PLEASE CONTACT: SCOTT KERR