On December 7, 2007, the UK Office of Fair Trading (OFT) announced that it had reached an "early resolution" agreement with a number of UK grocery retailers and dairy producers in relation to allegations of collusion in the pricing of dairy products between 2002 and 2003. Overall it is claimed that the alleged anti-competitive behaviour cost UK consumers around £270 million through artificially inflated prices.

The agreement follows an OFT statement of objections issued in September which set out the OFT's allegations and provisional findings. In particular, supermarket operators Asda, Morrisons, Safeway, Sainsbury's and Tesco were accused of colluding with other retailers regarding the retail prices they charged customers for (one or more of) milk, butter and cheese. Meanwhile, dairy producers Arla Foods, Dairy Crest, Lactalis McLelland, The Cheese Company and Wiseman Dairies were accused of facilitating this process by being the conduit through which sensitive price information was indirectly exchanged. OFT guidance notes that an exchange of confidential pricing information may lend itself to price co-ordination and thus to the reduction of competition which would otherwise be present between entities that are competitively aligned. Involvement in such activity is therefore considered a serious competition law infringement and may expose the participating companies to potentially severe financial penalties.

Under the terms of the announced agreement, the supermarket retailers Asda, Safeway (now owned by WM Morrisons) and Sainsbury's and the dairy producers/processors Dairy Crest, The Cheese Company and Wiseman have admitted involvement in certain anti-competitive practices and have agreed to pay individual penalties which, in total, amount to approximately £116 million. In addition, the companies have accepted liability in principle and undertake to co-operate fully with the OFT in its continuing investigation against other supermarket groups and producers who are not party to this agreement. In return, the OFT will bring to an end administrative proceedings against these companies.

It should be noted that the dairy producer Arla Foods has escaped administrative sanctions after applying for leniency and agreeing to co-operate fully in the OFT's investigation. However, investigations into the activities of Tesco and WM Morrisons, and dairy producer Lactalis McLelland, will proceed as these companies are not party to the settlement, having refused to admit involvement in the alleged activities.

The settlements are not yet finalised but the OFT appears to have offered the prospect of further reductions in fines in the event of full co-operation going forward (having indicated that those party to the settlement are receiving significantly reduced financial penalties compared with those which would otherwise have been imposed). The OFT notes that it did, in fact, take into account the impact of the 2001 foot and mouth outbreak and subsequent pressures placed on the supermarkets to support dairy farmers at the time of the alleged collusion. This appears to be a principal issue raised in defence by some of the accused but the OFT notes that it found no evidence that any of the price increases were, in turn, passed on to the farmers.

Announcement of this settlement underscores the OFT's desire to pursue enforcement objectives in a manner that is practical, pragmatic and cost efficient. Such an approach was seen in two other matters recently reviewed by the OFT. For example, a year ago the OFT announced its first "settlement agreement" in the Independent Schools inquiry. Chief Executive John Fingleton noted at the time that the OFT was willing "to consider innovative solutions in appropriate cases". In a similar light, the OFT announced in March that it intended to offer reduced fines to construction companies alleged to have taken part in bid-rigging. This was in return for the companies’ co-operation and admitting participation in the alleged activity even though they had not yet applied for leniency.

The OFT remains acutely aware of the administrative burden and cost of pursuing investigations and of defending appeals before the CAT, given its own very limited resources. It therefore seeks to maintain a level of flexibility in resolving matters by adopting, where appropriate, alternative approaches to resolution which reduce the cost of potentially extensive and expansive investigations while minimising the risk of any appeal. It should, however, be noted that this kind of settlement will not deprive an injured third party the right to bring a damages claim in reliance on an infringement decision.