Procedures have now been published that the Office of Fair Trading will use from 1 July 2012 for assessing requests for advice on whether large grocery retailers can be required to give up the benefit of certain historic exclusivity arrangements and restrictive covenants. Under the so called Controlled Land Order, introduced in 2010 after an investigation by the Competition Commission to address perceived shortcomings in the operation of the grocery retail market, restrictions in a number of specified / identified exclusivity arrangements and restrictive covenants which existed in favour of the seven largest grocery retailers in the UK had to be released or scaled back because levels of concentration in grocery retailing in identified local areas were very high and the exclusivity arrangements and restrictive covenants were considered to be contributing to difficulties on the part of other companies to break into the grocery retailing market.
It was recognised that because the large grocery retailers had not been able to provide full information on all exclusivity arrangements and restrictive covenants in their favour, there may have been other examples out there in the market that had not been identified which could be problematic as far as competition was concerned. A competition test was therefore devised against which these arrangements and covenants could be assessed in the future. Where the test is failed, the large grocery retailer can be required to give up (or reduce) the benefit of the exclusivity or of the covenant in their favour.
The competition test operates by analysing the concentration of the local market. The geographic boundaries of local markets will be established using software to determine ten minute drive times (or “isochrones”). It is only now (some 22 months after the making of the CLO) that the OFT has made clear what software is going to be used in undertaking the analysis. Once market boundaries have been established, an assessment will be made of how many grocery retailers are active within the geographic market, and of the share of the relevant market attributable to the Large Grocery Retailer benefiting from the exclusivity arrangement or restrictive covenant. Broadly speaking, the test will be failed if there are three or fewer grocery retailers operating in the local market and the sales area dedicated to the sale of groceries of the large grocery retailer benefiting from the exclusivity arrangement or restrictive covenant accounts for 60% or more of the total groceries sales area in that local market.
The OFT is charged with monitoring the operation of the CLO. Additionally the Competition Commission can give directions to ensure compliance. Breach of the CLO constitutes a breach of statutory duty, for which a remedy may lie in damages (to the extent that loss has been suffered). Section 167 Enterprise Act 2002 provides that the OFT and the Competition Commission may enforce the CLO by civil proceedings. In announcing the new procedures for applying the competition test the OFT specifically states that its objective is to advise people of their rights under the CLO, rather than for the OFT to take the lead in procuring the removal of restrictions, although it does say that it