In Cityhook v OFT and Ors [2009] EWHC 57, the High Court ruled for the first time on a challenge to the OFT's discretion to end an investigation on the basis that other investigations should take priority given its limited resources. One important reason for the OFT's decision was legal uncertainty about the test to be applied, which led the OFT to conclude that substantial further work would be required to complete the investigation. The case indicates that the Court will take a relatively deferential approach to challenges to regulators' decisions about their enforcement priorities and will recognise the practical implications for regulators of genuine legal uncertainty.

This e-bulletin addresses the case from a public and administrative law perspective. The competition law issues have been considered in a separate e-bulletin available here.

Background

The case concerned an OFT investigation into an alleged collective boycott of a new technology for landing submarine cables by an organisation known as the UK Cable Protection Committee ("UKCPC") and certain of its members. The Claimants ("Cityhook") had developed the technology and entered into agreements with the Duchy of Cornwall for its deployment. Cityhook also claimed that it was adversely affected by the collective setting by UKCPC and certain of its members of “wayleave” fees required for landing cables on land owned by the Crown Estate, Duchy of Cornwall and others.

The OFT started a formal investigation under the Chapter I prohibition of the Competition Act 1998. The investigation continued for 4 years and reached the stage where a draft statement of objections was prepared. It then became apparent that there was serious internal disagreement within the OFT as to whether the infringement was an "object-based" or an "effects-based" restriction on competition. This was important because an actual effect on competition is assumed in the case of an "object-based" restriction, but must be demonstrated in the case of an "effects-based" restriction. The OFT formed the view that substantially more analysis would be needed to prove an actual effect on competition and that given the uncertainty this would need to be done in order to complete the investigation The OFT then decided to end the investigation. It still believed that there was a potential infringement. But it had other cases and other priorities.

Cityhook challenged that decision, first in the CAT (which declined jurisdiction) and then by judicial review in the High Court (having issued a protective judicial review claim at an early stage).

Administrative priority as a ground for ending enforcement action

The OFT has a discretion as to which complaints it will investigate. It was accepted that the OFT was entitled to prioritise certain cases or areas in exercising that discretion. However, Cityhook argued that:

  • The discretion applied only to the decision to commence an investigation – thereafter OFT should continue unless it concluded that some weakness in the case had become apparent.
  • Alternatively, the discretion had been exercised unreasonably and/or based on irrelevant considerations or errors of law.  

Scope of the discretion

Foskett J rejected the argument that the OFT's broad discretion to prioritise cases was narrowed once it had decided to commence an investigation. This was primarily based on the statutory context, but also reflected an appreciation of the need for OFT to make judgments about priority throughout a long-running investigation.

Exercise of the discretion

Foskett J expressed some concerns about aspects of the OFT's reasoning but concluded that they did not taint the decision. He concluded:

  • The OFT was entitled to adopt criteria for prioritising cases provided these were not rigidly applied and did not substitute for the statutory discretion.
  • Without finally deciding the point, the Judge inclined to the view that the infringement was "object-based" and accordingly that further analytical work was not required. Nonetheless, applying the Wednesbury test, he concluded that it was not unreasonable for the OFT to decide that the issue was not straightforward and accordingly that the effect on competition would need to be examined in order to conclude the investigation.  
  • The OFT had put forward subsidiary justifications for the decision which were problematic. First, it had concluded that much more work was required on potential counterarguments and defences – a point which lacked substance after a four year investigation. Secondly, it had wrongly stated that it had compared the case against other investigations "at the same milestone" in deciding to end it. There were in fact no such cases. Nonetheless, these errors were secondary and did not taint the reasonableness of the overall conclusion that other cases should be given priority.  
  • OFT had made an untenable argument about consumer detriment as a further reason for ending the investigation. Nonetheless, the decision stood because the true/principal reason was that other cases had a higher priority.  

Transfer of investigations

Cityhook were, however, successful on the alternative ground that, under the Competition Act 1998 (Concurrency) Regulations

Implications

Much of the case turned on its particular statutory context, but it nonetheless indicates the courts' likely attitude to challenges to enforcement prioritisation decisions by other regulators such as OFCOM, Ofgem, Ofwat and the FSA:

  • Resource constraints and priorities remain a relevant consideration throughout the course of an investigation, in deciding whether to continue it. This is plainly a sensible view where investigations may be long-running and priorities will inevitably develop over time.
  • The regulator may adopt a policy for the exercise of the discretion to end an investigation provided it is not rigidly applied and the criteria do not "replace the wider discretions which the Act confers".  
  • The regulator is entitled to have regard to the implications of legal uncertainty (for further work required to complete the investigation and, possibly, in defending it in courts/tribunals) in deciding whether to continue an investigation. Even if the Court has a relatively clear view of how it would decide the legal issue, it will recognise that from the perspective of the regulator there may have been genuine uncertainty.  
  • The courts are likely to be deferential to the regulator in examining decisions to end or continue investigations: weak or defective reasoning on subsidiary points will not be sufficient to taint a decision provided the overall conclusion that other cases should be given priority is reasonable.