The Office of Fair Trading announced last week that it had reached a settlement with British Airways, which has admitted collusion over the price of passenger fuel surcharges and agreed to pay a fine of £121.5 million to the OFT. This is the highest ever penalty imposed by the OFT for an infringement of competition law. As Philip Collins, the OFT Chairman, has stated, the case "serves to remind companies of the substantial risks involved if they are found to engage in [anti-competitive] behaviour. It also illustrates how the OFT's leniency programme enables companies to eliminate or reduce their exposure to penalties by taking prompt and effective action". The settlement coincided with the announcement by the US Department of Justice that British Airways had agreed to plead guilty for its role in conspiracies to fix the price of passenger and cargo flights and to pay a fine of $300 million.
The OFT's investigation concerned communications between certain individuals at British Airways and Virgin Atlantic from August 2004 on the subject of passenger fuel surcharges, which were introduced by the companies in May 2004 to contribute to the recovery of substantial increases in fuel costs.
As soon as Virgin Atlantic's legal team became aware of the nature of the communications, they resolved to contact the OFT. Consistently with the OFT's leniency policy, Virgin Atlantic was required to specify the nature and emerging details of the suspected infringement and the evidence it had uncovered so far. It was then required to follow up by providing all the information, documents and evidence available to it in relation to the activity and to provide continuous and complete cooperation with the OFT's civil and criminal investigations.
As Virgin Atlantic was the first to apply to the OFT and there was no pre-existing civil and/or criminal investigation into the communications concerning surcharges, it qualified to receive civil immunity and all of its current and former employees and directors qualified to receive criminal immunity for cartel activity. This means that Virgin Atlantic is entitled to be granted immunity from any financial penalty which might otherwise be imposed by the OFT in connection with the cartel activity. Likewise, current and former employees and directors of Virgin Atlantic may not be prosecuted for the criminal cartel offence if they comply with the conditions of the grant of immunity. Individuals who qualify to receive criminal immunity may not be found liable to the criminal sanctions that apply under the Enterprise Act 2002: imprisonment for up to five years or an unlimited fine or both.
As British Airways was not the first to apply to the OFT, it was not eligible to receive civil immunity under the OFT's leniency policy. Likewise, its current and former employees and directors are not entitled to be granted criminal immunity for cartel activity. However, the OFT has indicated that "British Airways has also provided full co-operation with the OFT's investigation under the leniency programme". This means that British Airways was entitled to a reduction of the level of financial penalty imposed under the Competition Act 1998.
The resolution of the case by the OFT is significant in three respects:
First, the procedure followed by the OFT in its investigation is novel. Under the OFT's Rules, its usual procedure once it has decided that an infringement has taken place is to give a "statement of objections" to the parties to the conduct in question. It is only after the parties have had a reasonable opportunity to inspect the documents in the OFT's file and to make oral representations to the OFT that the OFT will make a decision imposing a penalty. It is usually at this stage that the OFT will make a press release and publish a non-confidential version of its decision. It is clear from the OFT's press release, however, that it has not yet taken an infringement decision against British Airways. As such, British Airways' agreement to admit to contravening the Competition Act 1998 and to pay a penalty is akin to a "plea bargain". As the OFT's investigation was conducted in parallel with a similar case brought by the DOJ, it is likely that this agreement has helped the OFT to keep up with the DOJ's fast-paced timetable and to announce its penalty on the same day.
Secondly, the agreed penalty far exceeds the highest penalty the OFT has imposed to date: a fine of £17.28 million imposed on Argos for fixing the price of toys and games in February 2003. This fine was reduced on appeal to the Competition Appeal Tribunal to £15 million in April 2005. Whilst the OFT has not yet published the basis for the calculation of British Airways' penalty, the headline figure will clearly draw attention to the objectives of the OFT's policy on financial penalties: to impose penalties which reflect the seriousness of an infringement and to ensure that the threat of penalties will deter undertakings from engaging in anti-competitive conduct. The agreement also suggests that the OFT is aiming to achieve greater parity with the DOJ and European Commission in the level of penalties it imposes for cartel activity.
Thirdly, the case shows the clear benefits to a company of making a prompt approach to inform the OFT of the existence of cartel activity. As Virgin Atlantic was the first to inform the OFT of the communications concerning passenger fuel surcharges and there was no pre-existing civil and/or criminal investigation into the issue, it qualified to benefit from total immunity from financial penalties. Likewise, its current and former employees qualified to benefit from immunity from criminal sanctions. British Airways' agreement to pay a fine of £121.5 million starkly highlights the risks of not taking effective action to investigate and report to the OFT on cartel activity promptly.