On 7 December 2007, the Office of Fair Trading (OFT) announced it had reached a settlement with a number of supermarkets and dairy processors over alleged price fixing arrangements entered into, principally, between 2002-2003 in relation to certain dairy products. On the back of admissions of guilt and ongoing co-operation with the OFT, the OFT has agreed to cap the amount of fines to be levied for certain market players. In addition, Arla has received full immunity from regulatory fines. Meanwhile, a number of other market players appear to have dug their feet in and are prepared to fight the OFT's allegations.
The Legal Landscape - black letter law and the current enforcement environment
Under the Competition Act 1998, the OFT has the power to impose penalties of up to 10% of turnover on an undertaking found to have acted anti-competitively. Participation in price fixing cartels is an anathema to the competition authorities with ever increasing fines for price fixing activities (for example, British Airways was fined £121.5m by the OFT in August 2007 for price fixing fuel surcharges with Virgin).
Price fixing is also a "hard-core cartel offence" under the Enterprise Act 2002. This means that individuals found guilty of engaging in price fixing can be liable for up to 5 years in prison and/or an unlimited fine, as well as director disqualification order for up to 15 years. On 19 December 2007, the OFT announced that it had, for the first time, brought criminal charges for breach of the cartel offence against three businessmen who had, amongst other things, sought to fix prices in the supply of certain oil equipment.
The Dairy Cartel - Factual background
In September 2007, the OFT provisionally concluded that certain large supermarkets (Asda, Morrisons, Safeway, Sainsbury's and Tesco) and dairy processors (Arla, Dairy Crest, Lactalis McLelland, The Cheese Company and Wiseman) had sought to fix the retail prices of certain dairy products.
Arla has already received full immunity from regulatory fines, presumably for "blowing the proverbial whistle", though the OFT has refused to confirm this. Meanwhile, all but Tesco, Lactalis and Morrisons were prepared to admit involvement in anti-competitive practices and agreed the payment of capped individual penalties subject to on-going co-operation (though, of course, immunity and restriction of liability to regulatory fines does not prevent third parties bringing damages actions against cartel participants in the courts).
The "Dairy Three" now face continuing OFT investigation and aggravated fines should the OFT conclude wrong-doing on their part. Indeed, the "word on the street" is that Tesco may be looking at a fine of up to £80 million. As is standard, should substantial fines be levied, the parties can be expected to challenge the level of fines before the Competition Appeal Triburnal (if not their substantive liability) and it is likely that the case will trundle on for a number of years.
The Dairy Cartel Investigation follows the growing trend towards encouraging greater cooperation from cartelists in return for a settlement. The OFT certainly signalled in its press releases on the Dairy Cartel that it is prepared to take a "flexible approach…to reduce the burden of investigations". At the same time, the European Commission is also currently consulting on the introduction of a settlement procedure for European cartel investigations. It is evident that infringing companies that cooperate with the authorities will receive lower fines; those who do not, and are subsequently found to have engaged in anti competitive practices can expect a somewhat more hefty penalty.