The Office of Fair Trading (OFT) has come under unprecedented criticism following its high-profile investigation into alleged price-fixing in the dairy industry. In a damning judgment reported in the Daily Telegraph, High Court judge Mr Justice Davis has granted Morrisons permission to seek judicial review of the manner in which the OFT publicised the supermarket chain's alleged involvement.
Wragge & Co LLP's head of antitrust, Bernardine Adkins, has joined Mr Justice Davis' in criticising the OFT. She applauds Morrisons's stand, saying, "It brings into sharp focus the consequence of the OFT's relationship with the press. Announcements made by the OFT can have drastic commercial effects on the parties concerned, whether they have infringed competition law or not. Morrisons's decision to sue the OFT for libel could mark a turning point in the OFT's behaviour in dealing with the press."
In September 2007, the OFT issued a press release stating that they believed that supermarkets and dairy producers had colluded in 2002, and in some cases in 2003, to put up the price of dairy products. This announcement came before the accused supermarkets had an opportunity to submit their responses to the OFT's statement of objections. Six months later and the investigation is still underway.
Publicly stating these allegations long before the conclusion of the investigation has led to criticism. Mr Justice Davis was quoted in the Daily Telegraph saying that the press release illustrates "the dangers of bodies such as the Office of Fair Trading engaging in public relations exercises designed or calculated to attract potentially sensationalist publicity via the media".
Several retailers and dairies chose to settle the dispute with the OFT last December, as reported in a previous alert on dairy fines, and Lactalis joined that list last week. Bernardine says, "However, Morrisons has been steadfast in disputing the allegations."
"The OFT's practice of issuing press releases naming suspected parties, before investigations have concluded, is not the only cause for concern. In the OFT's quest to grab headlines, its press releases have also failed to draw attention to less sensationalist activities. In doing so, it has missed an opportunity to educate industry."
In a series of cases concerning roofing contractors, decided between March 2004 and February 2006, there was a great emphasis in OFT press releases on the parties' bid allocating through collusive tendering. However, the press releases failed to address the OFT's discovery of the ubiquitous industry norm of 'cover pricing', which it acknowledged is not one of the most serious forms of bid rigging.
Cover pricing is a common practice in the construction industry. A party invited to tender, who perhaps for reasons of limited resources or capacity is not in a position to perform the contract, will ask for a 'cover price' from another tendering party. This figure will be sufficiently high to ensure that they do not win, yet realistic so as to not appear disinterested in working for the customer inviting bids. Thus, the party avoids the risk of being de-listed for the future. At no point do the parties form any agreement as to who will win the bid, and the customer will still have a field of competing bids.
It is thought many businesses may have engaged in cover pricing as a matter of industry convention purely through naivety. Bernardine adds, "By failing to publicise this less serious, yet more common form of collusive tendering in favour of chasing headlines, the OFT missed an opportunity to educate an industry on competition compliance."