The OFT suffered a significant setback when the Competition Appeal Tribunal (CAT) recently handed down its judgment on appeals by construction companies against fines levied by the OFT, undermining its ‘minimum deterrence threshold’.

In September 2009, the OFT had imposed total fines of just under £130m on 103 construction companies for breaches of competition law. The CAT’s judgment last week covered 6 of 25 appeals, reducing total fines against those 6 companies by 90% from just under £42m to a total of only £4.4m. The judgment is particularly noteworthy as it seriously undermines the OFT’s attempt to adopt a ‘minimum deterrence threshold’ applying to an infringing party’s world-wide turnover – this ‘MDT’ is intended to ensure that regulatory fines are set sufficiently high to operate as a genunine global deterrence.

Judgment on the remaining 19 appeals is awaited, alongside indications of whether the OFT will seek to appeal. Absent a successful appeal, it seems likely that this will result in a fundamental rethink to the OFT’s fining Guidelines, ensuring that the OFT in future takes a much more individual approach to matching fines to the nature of the infringement and rendering it more difficult to apply generic deterrence principles.

Given the similarities currently with the FSA’s enforcement regime and its desire to achieve a high deterrence effect through its use of fines, I have no doubt that the final outcome will be watched closely from Canary Wharf.