On 20 January 2009, in the Cityhook case, the High Court ruled for the first time on the OFT's discretion in closing an investigation under the Competition Act 1998. The Court recognises that the OFT has discretion to decide whether or not to close an investigation without reaching a final decision and makes it clear that the OFT is entitled to prioritise its cases. The judge was nevertheless highly critical of the OFT's approach in this case where, having investigated the matter over a four year period and having come very close to issuing a statement of objections, the reasons given for closing the case were less than convincing. Although the OFT's decision was upheld as it was not found to be irrational under the 'Wednesbury criteria' (so unreasonable that no person acting reasonably could have made it), the judge has directed that proper consideration should be given to the possible transfer of the case to Ofcom in accordance with the Concurrency Regulations.
In February 2002, Cityhook complained to the OFT that it was the victim of a collective boycott in relation to its submarine cable landing technology by the UK Cable Protection Committee (“UKCPC”) and certain of its members. 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 which lasted for a four year period and resulted in a draft statement of objections being prepared by the OFT's case team. There was however serious disagreement within the OFT as to the nature of the infringement and how best it should be pursued. The disagreement centred round the issue as to whether there was an effects-based or an object-based restriction of competition.
In 2005 the OFT introduced its prioritisation criteria, setting out the criteria it would take into account in prioritising its competition case load, permitting the OFT to close investigations on grounds of administrative priorities. The OFT decided to close the case on the basis that it fell outside the OFT's administrative priorities. A provisional case closure decision was sent to all interested parties, giving them the opportunity to comment before the OFT adopted the final case closure decision. The final case closure decision stated that the OFT believed that it had other ongoing cases which were much more deserving of the resources tied up in the collective boycott case. Although there was evidence of a potential infringement, the case would need to be developed considerably before a sufficiently robust statement of objections could be issued.
Cityhook appealed to the CAT, claiming that the decision was appealable because it was in fact and in law a non-infringement decision. The CAT disagreed, finding on the facts of the case that the decision to close the investigation could not be classified as a non-infringement decision, and in April 2007 the CAT handed down a judgement in which it found that it did not have jurisdiction and that the appeal was therefore not admissible.
In previous case closure decisions which had been admissible on appeal to the CAT, the OFT had reached a decision that there was no infringement as it had not been able to obtain sufficient evidence of infringement. In the Cityhook case however, the OFT had gone a long way towards reaching an infringement decision but had then decided to close the case on the basis of its administrative priorities, without reaching a decision one way or the other. The CAT held it was impossible to qualify this as a non-infringement decision. It did however express concerns that a decision to close an investigation can be taken by the OFT without the opportunity for that decision to be tested on its merits by the CAT. It noted that it had not found the case an easy one to decide and was concerned that its decision has produced the "somewhat incongruous result that a sufficiently interested person has a right of appeal on the merits to the Tribunal against a non-infringement decision, whereas in cases where the evidence supports a finding of a potential infringement, but the authority chooses to close the case file without reaching a final decision, such a person has no right of appeal on the merits".
Cityhook had also made a protective application for judicial review of the OFT's decision before the High Court, which was stayed pending the outcome of the CAT appeal.
Judicial review judgment
Cityhook challenged the OFT's decision to close the investigation on three grounds: the structure of the Competition Act, the lawfulness of the OFT's prioritisation criteria and the OFT's assessment of the case.
- Structure of the Competition Act: Cityhook argued that, whereas the OFT can exercise its discretion as to whether or not to start an investigation under the Competition Act and can take into account resource issues at that stage, when deciding whether or not to issue an infringement/non-infringement decision it is only entitled to take into account factors that are intrinsic factors of the case. The judge rejected this argument and held that the structure of the Competition Act does not preclude the OFT from taking into account its administrative priorities after the decision to commence the investigation has been made.
- Lawfulness of the prioritisation criteria: Cityhook argued that two of the OFT's prioritisation criteria, those of consumer benefit and type or nature of the infringement, were unlawful and had no statutory basis. The judge disagreed and held that both criteria were factors which the OFT could take into account. Although in his view prioritisation criteria can not replace the wider discretion conferred by the Competition Act, they do give the exercise of the OFT's discretion a focus that allows some consistency of approach. Without sensible criteria the OFT would be swamped with investigations which in itself could frustrate the essential purposes of the Competition Act.
- OFT's assessment of the case: Cityhook argued that the provisional closure letter did not give sufficient information to enable it to comment fully and appropriately and that in other areas the response of the OFT either failed to address the issues that Cityhook had raised and/or was plainly wrong. Despite the fact that there had been much internal debate within the OFT as to whether the alleged infringement should be classified as object-based or effects-based, the final closure letter did not refer to the possibility of an object-based infringement. The OFT had instead taken the view that the effect of the collective boycott on the market should be examined and that the case would therefore need to be developed considerably before a robust statement of objections could be issued. Although the judge was highly critical of the reasoning set out in the OFT's final closure letter, and found it surprising that, following a four year investigation by the OFT, any further work required to issue a statement of objections would have been significant compared to the scale of the overall investigation, he did not consider that the OFT's decision to close the case should be quashed as it was not irrational in the Wednesbury sense.
Concurrency and the role of Ofcom
Cityhook also argued that the OFT had acted unlawfully in failing to consider whether the case should be transferred to Ofcom under the Concurrency Regulations. The Competition Act (Concurrency) Regulations 2004 are aimed at ensuring the coordination and performance of concurrent functions under the Competition Act by the OFT and the other sector regulators. Although the OFT and Ofcom reached agreement at the start of the case that the OFT would take on the case, the OFT never considered transferring the case to Ofcom when it took the decision to close the case under its administrative priorities. The judge held that he could see no justification at all at that stage for not engaging in a process or dialogue with Ofcom that would have given Ofcom the opportunity to take over the case, particularly as one of the reasons given for the OFT taking a view about its administrative priorities was Ofcom's concurrent jurisdiction in the matter. The judge therefore directed that proper consideration be given to the possible transfer of the case to Ofcom. It will then be up to Ofcom to consider whether it wants to take on the case based on its own administrative priorities and available resources.